Feb 11 FT & HK close CHINA CPI, Toyota, Maersk, Japan pressure to quit, US/China and the S China Sea.


11 Feb

Gong Xi Fa Cai or if you prefer Kung Hei Fat Choi for the Year of the Ox.

MARKETs 
JAPAN Closed re-opens Friday
S KOREA Closed re-opens Monday
TAIWAN Closed re-opens 17 February
CHINA Closed
re-opens 18 February News that President Biden and Xi did speak overnight but the tension between the two countries remain elevated.
HONG KONG Pre market opened @ 29,995 -43pts vs -139pts ADR’s.
Market initial traded lower down to 29,828 in the first 20 minutes before reversing and working higher for the rest of the morning to close at the day high ahead of the Lunar New Year break. Hong Kong re-opens Tuesday 16 February.
HSI +134pts (0.45%) 30173   HSCEI +70pts (0.59%) 11880  T/O HK92.087bn (-48% DoD)
*PETROCHEMS WEAK 
despite Oil futures rising for eight days in New York, as EIA data showed crude stockpiles -6.6m barrels to the lowest since March 2020, falling more than expected. CNOOC (883 HK -0.9%) CHINA OILFIELD (2883 HK +2%) PETROCHINA (857 HK -0.4%).
*E-COMMERCE PLATFORMS MIXED ALIBABA's (9988 HK -0.5%) as Bloomberg reported Jack Ma spotted playing golf in Hainan, easing China detention fears. TENCENT (700 HK -0.5%) on news reported one of its executive was held for links to corruption case. Tencent said the case was a personal one and not lined to the company. Twitter profits soar to US$222m in the December quarter. +87% YoY. MEITUAN (3690 HK +3.4%) WEIMOB (2013 HK +11%). PA GOOD DOC (1833 HK +21%) jumped on report that ARK Fund is buying shares in the market.
*CHINESE BANKS STRONG following the recent strong loan growth. ICBC (1398 HK +1.4%) CCB (939 HK +1.5%) ABC (1288 HK +1.4%).
*HK BANKS MIXED after STANDARD CHARTERED BANK (2888 HK +0.7%) said it will consider whether final dividend for the year will be distributed on Feb 25th following HSBC (5 HK -0.2%) similar announcement. HANG SENG (11 HK +0.6%).
*CONSUMPTION STRONG ahead of the week-long holiday in the mainland, and the news that HK will ease dining and social distancing limits after CNY as local Covid cases continue to drop. HOT POT chains soared, XIABUXIABU (520 HK +13%) JIUMAOJIU (9922 HK +7.8%) HAIDILAO (6862 HK +0.6%). HK RETAILERS STRONG SASA INTL (178 HK +11%) BONJOUR (653 HK +10%) and GOME (493 HK +12%).
*HK LANDLORDS FIRM local Covid cases in HK eased; malls and shops may see pickup in visitor traffic when some social distancing rules are being lifted after the CNY holidays. SHKP (16 HK +1.5%) HENDERSON LD (12 HK +0.8%) CK ASSET (1113 HK+2.3%).Wheelock Properties has named the second phase of Monaco development in Kai Tak Grande Monaco, and units will be a 10% increase in price compared to the first phase, given the better location and environment.
*PHARMA MIXED  after Mexico approves emergency use of Chinese vaccines made by CANSINO (6185 HK +2.2%) and SINOVAC. FOSUN PHARM (2196 HK -1%) SINOP
EUROPE Markets opened slightly higher but has eased lower as traders again assess earnings with AstraZeneca, Credit Agricole, Commerzbank and Unicredit and cosmetics company L’Oreal were among the biggest names reporting before the bell, along with other like Arcelormittal, Schneider Electric and Zurich Insurance.Tech higher but Insurance sector seeing some weakness.
Data
GERMANY
Wholesale Prices Jan +2.1% MoM vs +0.6% Dec Wholesale Prices Jan 0% YoY vs -1.2%Dec
FRANCE IEA Oil Report
US Futures Opened in Asian time opened Dow +34 pts with S&P and Nasdaq higher.Dow now +51pts with S&P and Nasdaq mildly positive,
AHEAD Initial Claims, Jobless Claims 4 week Average, Continuing Claims, EIA Natural Gas Stocks Change, Fed Monetary Policy Report.
Earnings: PepsiCo, Walt Disney, Kraft Heinz, Expedia, AstraZeneca, Generac, Virtu Financial, Yeti, Kellogg, AllianceBernstein, Borg Warner, Duke Energy, Molson Coors, Tyson Foods, ArcelorMittal

FT Front Page
Spanish cheer Hoteliers look to the summer 
Amsterdam usurps London as Europe’s top share trading hub. Fourfold surge in business for Dutch city • Volumes fall sharply in UK as Brexit bites
WHO boosts global vaccine push by backing Oxford/Astra jab for all ages Despite recent set backs its recommended globally.

Inside
China factory prices reflect pace of recovery (Page 4) looks at yesterday’s China data which saw PPI rise for the first time since Feb 2020 and CPI falling for the second time in 3 months
PPI indicates the recovery in China is continuing as demand for raw materials drives up prices; especially those related to the construction sector. Which indicates that it is largely domestic demand at work; although exports have also been rising but mainly medical connect with the covid virus and electronics. We are yet to see a broader rise in exports. Interestingly due to covid many factories will remain open as orders remain high and travel is restricted
The drop in CPI was in part due to pork prices along with a reluctance for households to spend. That drop has raised hopes that the government might increase stimulus for the economy. I doubt that in the short term as the PBoC is worries about asset bubbles and is likely to take a wait and see approach. It is still concerned about inflation and many expect it to tighten later in the year.
For investors the cautious behaviour of households I think reflects concern that the economy is only recovering in some sectors rather than a broad sense and that there is still concern about job security. Resources look to be a good play on that basis but consumer consumption names less so.

Toyota boosts outlook 54% despite chip bottlenecks  (Companies & Markets lead page)
Highlights its better supply chain management.
Notes that the Japanese car makers have been less impacted by chip shortages than European and US competitors due to the lessons learnt from the Tohoku Earthquake and tsunami in 2011. The article points out that Toyota has a larger than average chip inventory of up to four months and also that it keeps its chip suppliers informed of its precise production plans up to three years in advance.
Shares briefly hit a new high after the announcement but then gave up some of those gains. I think Toyota stands out amongst the Japanese auto makers for is consistently good management; which is probably why its the worlds largest car maker in terms of sales and profit margin.

Containment Maersk boss defends shipping sector over brutal rates and broken contracts.  (Companies & Markets lead page)   Noted that 2020 was an extraordinary year with a significant increase in demand at the year end.  He made the comment that ships don’t get bigger because demand increases. Back in the 2008/9 crisis the sector came under huge pressure and saw a big consolidation, which included forming the alliances that some exporters now complain about.  But the fact is that for much of last year there was excess capacity and rates were weak.  
The article points out that 'In the last two months of 2020, freight rates between China and Europe quadrupled, causing shortages of a wide range of goods.’
It is also interesting that there was no mention of China calling on shippers to cap rates last last year and he didn’t mention the lack of containers.
Maersk shares traded lower despite its good results because Soren Skou, chief of Maersk, warned of more bottlenecks in the months to come. Additionally some analysts think rates may have peaked. Add to that the rising oil price which will be another hit for margins.
Its share price hit a high mid January and has eased since then.  The outlook is far from clear  for the sector.  Covid variants are raising concerns and delays in vaccinations could have a big impact in demand goods.  So far the much of the export out of China has a been medical covid related and electronics.  Until we see a more normal spread of exports in all direction then the outlook for the shippers remains uncertain. 

Pressure mounts on Olympics chief to quit (Page 4)  Sexist comments about women continue to dominate public debate.  The comments have now become a national issue and really reflect the unwilliness for the older generation in Japan to accept change.  The fact that Olympic sponsors have also started to speak out both against Mori and at the same time highlighting their commitment to diversity, shows another change in attitude within Japan.  But the fact he hasn’t resigned shows the extent to which the old establishment believes it is still above public criticism.
For investors its one to watch, if in the next few days he is forced to resign that will be another sign of structural change in Japan and one that is important for investors as it shows a willingness for more change.

US admiral says Chinese activity has grown in S China Sea (Page 4) Notes that China is utilising more ships and planes on a daily basis.  Also that unlike previous occasions that the Chinese operations did not show any ‘unprofessional behaviour’.    That I think is note worthy, it probably reflects that China knows that all the events are likely to come under a spotlight and it wants to retain as much good opinion as it can.
Moreover that commanders are aware of the potential for any ‘accidents’ to be mis interpreted and for events to quickly escalate as was seen on the Indian border.
Not mentioned in the article but notable was the fact that a French submarine and naval support ship is also operating in the area. That I think shows a coalition of forces that will make it much harder for China to claim its just the US that is provoking China.

Opinion West must pay attention to Russia and China’s vaccine diplomacy. Looks at the credibility they are achieving first from sending masks and other equipment and now from vaccines.  They are being especially successful with poorer nations.  An interesting read. We still have to see how effective their vaccines really are; the data released so far has been limited.  Time will tell but as with much of the BRI programme  things that started off with such promise have over time be exposed as less than perfect for the host nations and required renegotiation.  That for many has tarred China’s reputation and exposed the difference between the marketing hype and the reality of what has been delivered.

Japan suffers rise in female suicides during pandemic (Page 4)   Officials were worried when the pandemic occurred that it would be middle aged men committing suicide after job loss or business failure.  The reality is that it is the young and women; with female suicides rising 15%.  At this stage it is not clear why and there are big regional variances. But its a reminder that the cost of the pandemic is seen in more than just financial losses.

Vestas to build skyscraper offshore turbines.  Will build the worlds largest offshore turbines in an effort to lower costs.  The new design will be 260m tall similar to GE and Siemens, the competitors it is seeking to catch up with. The focus on offshore is to allow for increased scale in an effort to reduce construction costs.
'An auction this week for English and Welsh offshore wind development rights attracted record prices from oil majors including BP and Total, as well as entrants to the UK market such as German utility EnBW.’ But Danish developer Orsted warned that the very high prices for the UK risked making it uncompetitive vs rival tech. High prices meaning higher electricity bills.
Orsted is going to be active in Poland and has already done a lot in Taiwan.

Editorial Fed must be mindful of mounting inflation fears.  A strong recovery and sizeable stimulus raise the risk of ‘overheating’
Warns the Fed against committing itself to a long term policy when events could change the circumstances in a much shorter time frame.Starts by reminding us that 'The job of the Federal Reserve, the central bank’s former chair Bill Martin once said, is to take away the punchbowl just as the party is getting started.’ The Fed committing to be ‘patiently accommodative’ through to 2022 could in fact be ‘spiking’ the punch. I still think that inflation could come back much stronger and faster than many are currently expecting and not just in the US.

Bourses sue SEC over drive for wider data feeds access. Reveals the conflict on interest. The SEC wants more investors to have access to high quality data at the fastest speeds but at no cost and that will undermine the stock exchange’s business model of selling that data to premium clients. They increasingly make more from data than trading.The conflict is between the SEC seeking to serve and protect retail investors trading cheaply and professionals who are prepared to pay for the data as a cost of business.To me the realities that if retail investors want the information that professional use then they should pay the same as professionals.  The fact that some brokers are prepared to offer commission free trading does not entitle them to free data too.  It may well be that they can get their brokers to pay for it.
Read also Free trading boom electrifies US retail investment scene. Rush to place bets follows Robinhood’s trailblazing adoption of no-fee broking.  
Also Action needed to tackle social contagion risks by Ian Goldin a professor of globalisation and development at Oxford and co-author of “Terra Incognita: 100 Maps to Survive the Next 100 Years”. The article draws on work by Valentina Semenova and Julian Winkler.  
Concludes 'Fortunately, social contagion takes time to develop and is possible to track. This means the regulators need not be caught out.Trading limits should be tightened on stocks which display frenzied activity, preventing destabilising market moves. Margin requirements should be increased for stocks that are subject to retail investor herding.Regulators need to act now to ensure that markets are properly capitalised and that this development does not provide a new source of systemic risk.’

I doubt that trading limits can be introduced, who would set them and on what basis? The recent frenzy of trading was not just retail investors. Equally on margin requirements; these are already in place and proved to be effective. It's a nice idea to think you could temper retail or any investor but the truth is you can’t. The ultimate regulator of such activity is usually the investor losing money.

For Interest
Early digital foray gives Norway’s top bank an edge. DNB chief’s close attention to costs and online strategy pays off as rivals struggle.Some key initiative include closing 70% of its bank branches and developing technology for fully-automated loan decisions and simple mobile payments. It cut staff an now has the highest levels of profitability per employee.
Its CEO noted that “Customer interactions have gone up as the number of branches has gone down. We have doubled revenues, and kept costs fairly stable — and the only reason this could happen is the transition to digital.”
Key is that it recognised that it wasn’t just competing with other banks but with newer digital entrants. The benchmark is more about the user experience would have using Google or Apple than other banks.
DNB set up Vipps and money payment app in 2015 for customers to send small sums by mobile phone, it later spun that off as a separate company.
The CEO commented that there was opposition to the branch closures but people did use them but liked the idea of them. I think that is something many banks are going to have to grapple with; especially the regional branch network in Japan. The growth in China of Ant and others demonstrates that a branch net work is not a key requirement.

FT joins Wilshire for return to equity indices
On the expiration of the decade long non compete clause its returning develop indices focused on environmental, social and governance investment products with Wilshire investment advisory group.Notes how indexing has boomed with the rise of passive investing vehicles; like ETF’s. WIth the data and commentary important to help investors navigate the changes that drive modern markets.Notes 'A global survey by the Index Industry Association highlighted ESG as the leading growth driver, recording a 40 per cent increase in the number of indices over the past year, up from 13.9 per cent growth in the previous year.'

FT BIG READ. RENEWABLES How tech went big in green energy. FT series To meet bold climate pledges, Amazon, Apple, Facebook, Google and Microsoft have become the dominant corporate buyers of clean power. The surge of investment is changing the electricity market.
'One common thread that runs across tech companies’ approaches to climate change is they believe technologies such as renewable energy and direct air capture will solve the problem. This philosophy has been attacked by activists such as Thunberg, who say changing human behaviour is just as important as finding technical solutions. As Big Tech goes green, it won’t be without growing pains.'

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