MARKETs @ 2:30pm Hong Kong time
Pre market inflation data was better than expected
Nikkei 225 opened lower @ 29,970 as the inflation data was stronger than expected but worked initially higher to traded around 30,100, as Flash PMI data was good. But late morning sold back down to the opening level. PM opened lower and worked slight higher through the session Currently -237pts (-0.8%) @ 30,000
Topix traded in a similar fashion currently -14pts (-0.7%) @ 1,928
Inflation Rate Jan -0.6 YoY vs -1.2% Dec (F/cast was -1%)
Inflation Rate Jan +0.5% MoM vs -0.3% Dec (F/cast was -0.2%)
Core inflation Rate Jan -0.6% YoY vs -0.4% Dec (F/cast was -0.3%)
Inflation Ex Food and Energy Jan +0.1% YoY vs -0.4% Dec (F/cast was -0.3%)
Services Feb 45.8 vs 46.1 Jan (F/cast was 47)
Manufacturing Feb 50.6 vs 49.8 Jan (F/cast was 50)
Composite Feb 47.6 vs 47.1 Jan (F/cast was 47)
Pre market PPI data stronger than forecast, signs of continued foreign and institutional selling on inflation concerns. Local concerns eased as covid cases dropped back below 600, KDCA reported 561 Friday (vs 621 Thursday)
Kosdaq opened flat but after an initial uptick sold down finding support at 945 around 11:30am and then worked higher currently -4pts (-0.4%) @ 964
Kospi Opened higher and initally trade sideways with Thursday’s closing level being support. But mid morning sold down and found support at 3,040 which it tested a couple of times before working higher. Currently +12pts (+0.4%) @ 3,099
PPI Jan +0.8% YoY vs +0.1% Dec (F/cast was -0.1%)
PPI Jan +0.9% MoM vs +0.7% Dec (F/cast was +0.2%)
Opened lower following the weakness in the US and despite good local earnings. TSMC was weak. Market trended lower through the morning but found support late morning at 16,210 level and then worked higher to close -83pts (-0.5%) @ 16,341.
Data due tomorrow GDP Growth Rate, Export Orders
CSI 300 opened lower but initially tested higher to yesterday’s close but failed and then sold down through the morning with support at 5,667 which it tested a could of times before rallying into lunch. PM opened higher and worked higher, currently +18pts (+0.3%) @ 5,786.
Looks like Team China keen to see the markets +VE.
No data today But on Monday Loan Prime Rate data
Pre market opened @ 30,483 -112pts vs -115 ADRs
Market saw a choppy start dropping 200pts in early trades, which is likely to have been margin selling, then rebounded to the opening level only then trend lower for the next hour. Found support at 30,100 and then worked higher into lunch. PM working higher and approaching yesterday’s closing level. Currently -82pts (-0.3%) @ 30,520
Telcos strong as a safe utility play with consumer names but Ecommerce names remain weak along with Auto and Petrochems
Lifestyle (1212) issued a profit warning.
Expect markets to open lower with concerns over inflation and weakness in Asia. Pre market data also likely to have an impact.
EUROZONE Flash PMI (Services, Manufacturing and Composite)
GERMANY PPI, Flash PMI (Services, Manufacturing and Composite)
FRANCE Inflation Rate, Flash PMI (Services, Manufacturing and Composite)
UK Retail Sales, Flash PMI (Services, Manufacturing and Composite), Public Sector Borrowing, CBI Industrial Trends.
After market Thursday UK Consumer Confidence Feb 23 vs 28 Jan (F/cast was 26).
Opened Dow +35pts, S&P and NDX both slightly higher; as Janet Yellen told CNBC Thursday after the bell that more stimulus is necessary even as some economic data suggested a swift rebound. But then sold down in Asian time Dow -94pts with S&P and NDX both lower.
AHEAD Flash PMI (Services, Manufacturing and Composite), Existing Home Sales, Baker Hughes Rig data.
Earnings: Deere, Eni, Allianz
China’s clampdown on Jack Ma’s Ant boosts rivals
High-interest lenders fill market vacated by fintech group, increasing fears of rising defaults. Limiting Ant has forced consumer to other sources which charge higher rates and have less sophisticated systems to identify and manage risk.
So whilst the official line was to protect borrowers (from an unfair monopoly) and the system is seems to be failing. Ant’s economies of scale and use to tech actually gave consumers a better deal.
Of more concern is the potential back lash of public opinion.
Many investors had been looking forward to the listing as a way to make money. Many of the poorer members of Chinese society are now going to pay more for loans and may be granted loans they can’t afford. A society that is already seeing young Chinese are using social media platforms like Bilibili to voice despair over rising house prices, widening inequality and the price of everyday goods. The growing frustration about social mobility highlights a ‘serious divergence’ between China’s fast-growing economy and the life satisfaction of citizens.
I am sure Beijing will be monitoring the situation carefully, and Jack Ma has been keeping his head down but the worry must be that many start to agree with what he said. President Xi moved quickly to shut down what he and others considered a threat to him and the party, but they may have only succeeded in lighting another fire that will need to be put out.
Macron calls for urgent supply of Covid vaccines to poorer nations
Exclusive interview French leader highlights perils of inequalities in run-up to G7 summit.
Full interview on page 3.
GameStop traders grilled in Congress on surge that raised ‘rigged’ Wall Street fears.
Politicians say events seem to lend credibility to Wall Street being rigged. The Chair of the House Financial Committee called for ‘robust protections for investors and accountability fro Wall Street’.
Comments from Gill, who is said to have been behind some of the moves and portrayed himself as an amateur although is a licensed securities professional said “I’ve had a bit of experience and even I barely understand these matters,” Gill said. “It’s alarming how little we know about the inner workings of the market.”
Key; is that stock markets carry inherent risks. There are already a number of protections; the fact that Gill is facing a class action for his part reflects that. But at the end of the day if people who hold down other jobs want to dabble in a market where there are full time professional operating, then that is their choice.
War games used to build Czech cyber defences. (Page 3)
The Czech Republic is carrying out war-gaming exercises with companies to strengthen its critical industries against cyber attacks, supply chain disruption and ownership bids by hostile states such as China and Russia.
The fact that China is singled out is significant. The interview is with Tomas Kopecny, deputy minister for industrial co-operation in the Czech Ministry of Defence and Armed Forces. He says that China is a ’systematic rival’ to the EU and that foreign investors are increasingly trying to steal IP.
He says that Chinese state-affiliated investors are targeting sectors in Europe and so the war games are necessary to protect business.The Czech Republic has seen a cyber attack on a hospital in the early days of covid and a threat against Czech companies in China if the President visited Taiwan.
The modern cyber threat is a major issue for companies the hack recent via FireEye highlighted that often attacks are via malware but the fact that it could come from a trusted supplier because of ’state lead’ hacking reveals how advanced it has become and how dangerous it is. I would hope that businesses and governments work closer to protect the national interests.
ECB vows to maintain stimulus amid inflation rise (Page 3)
The minutes show that the ECB policymakers promised to 'disregard any short-term jumps in inflation or nominal interest rates.’
The problem for them and the Fed will be in deciding what a short term jump becomes a long term trend, delaying change for too long could be disastrous but so could acting too early. The minutes show the ECB hope to be able to maintain a steady policy this year, with an implication that any action is likely to be in the form of more loosening.
Japan appoints female chief of Olympics (Page 4)
With just 115 days to go before the official start the quick appointment reflects a hope to defuse the sexism row and ensure the games go ahead although whether they will be successful is questionable. PM Suga and other are pushing it but increasingly the Japanese people are questioning it. The money has largely been spent and sponsors will want to try and get some return on their investment but that is likely to be far less than was originally hope. The key for Japan will be how the facilities will be used post Olympics.
Companies & Markets Section
Italy probes €1.3bn PPE contract with China groups
• Tender awarded through mediation
• Prosecutors allege huge commissions from the Chinese companies to the Italian companies owners.
Four Italian companies Sunsky, Partecipazioni, Microproducts It and Guernica with the executives including; 'Andrea Vincenzo Tommasi, chief executive of Sunsky; his business partner Daniele Guidi, former chief of San Marino national bank; and Mario Benotti, founder of Microproducts It and a former executive at Italy’s public broadcaster, Rai, are under investigation for money laundering, possession of stolen goods and illicit traffic of influences, prosecutors said yesterday.’
Some very large sums being paid to the intermediaries which gives insight into how much profit was being made by the manufacturers.
For China it will be unwelcome publicity but for investors apart from the obvious ethical implications is the fact that as the pandemic eases a lot of companies that had switched to PPE production are going to see business decline and that may happen before their core business picks up to pre pandemic levels and so hurts profitability.
Trading jolt as bitcoin ETF debuts in Canada
Looks at the launch of the Purpose Investments bitcoin ETF; the first North American ETF fund. It has attracted interest from institutional and retail investors who do not want the hassle of buying bitcoin directly. There are a number of Grayscale cryptocurrency trusts but they are OTC and less regulated. Another step towards crypto being accepted as a mainstream investment medium.
Australia’s Big Tech fight resets online news debate
Publishers await global impact of Facebook and Google’s differing responses to new law. The fact that the two groups have elected different paths rises the question about whether the new law will save or kill journalism. A lot of other countries will be watching carefully too.
Daimler cautious on shift from petrol models
Says it will not prematurely phase out sales of combustion engine vehicles, its chief executive has said, as petrol and diesel models are a “cash machine” that will help fund future electric models.Highlights the problem for European makers is that they are a long way behind on EV’s which could be a longer term problem for them.
Barclays boss looks forward to consumer spending recovery. He expects a robust rebound having seen a decline on covid related loan loss provisions and strong investment banking performance. BUT Barclays reported Q4 net profit -68% and warned about an uncertain outlook; 'with the true fallout disguised by government and central bank support programmes.’
Notable that their customers paid down their credit cards and increased cash deposits. His expectation is that client will start spending that money.
As with so much related to covid that remains to be seen. The changing landscape for jobs and the increased awareness of the need to have bigger personal savings 'just in case’ may mean that people don’t spend. The rich have largely be able to maintain their spending so it is the middle classes that are going to be key.
Activists take dim view of US power lines push
Sierra Club and Maine resources body are among those defying Iberdrola’s 230km green project alongside generator allies
The thing I found interesting about the article was that the US Federal Energy Regulatory Commission sees the need to build a substantially bigger grid; to allow 'wider deployment of solar and wind power, filling gaps when the sun shines or wind blows in one place but not another. It would support rising demand from electric vehicles and building heaters.’
A Princetown study thinks it needs to be 60% bigger by 2030 and maybe 3x as large to achieve net carbon zero by 2050. That's just the US most other countries will need similar investments to allow for the interconnection of renewables. That is a going to require a lot of aluminium conductor steel and is another reason to be positive on commodities.
The obstacles to it happening though are; permitting, planning and deciding who pays for it!
Airbus warns over pace of aviation recovery
Interestingly says that 'the short-term environment appeared to be deteriorating with new Covid variants and multiple national lockdowns.’
Also that despite vaccinations things were not going as expected. Hearing a note of caution when so many sectors are expecting strong recoveries is refreshing. I still think there are a lot of unknowns out there in the structure of supply chains and working practices; which will only become clear in time.
Chinese stocks hit record as post-Covid optimism feeds holiday spending spree
Notes that China did open higher but then sold down as the PBoC drained liquidity from the system and concerns that the Bank regulator was tightening up on how personal loans were being used, with a view to ensuring the money did not end up in property.
It's a tough one in China because there are many ways to beat the system. Often to get a loan you are required to provide the invoice and the loan is granted against that. But there are a lot of shop owners who will give you an invoice for a fee and then you can use the cash how you want. Money often goes into property or the stock market. It is one of the reasons the PBoC is so keen to get a better handle on actual consumer spending. The digital renminbi would give it that clarity. It did try and set up its own data collection but without the co-operation of Ant and Tencent was not particularly useful.
The article does note an increase in Chinese retail and restaurant spending over the lunar new year; +29% YoY, box office receipts also hit new highs but whether that continues remains to be seen.
The key being that Chinese New Year is China’s big event, when people make an extra effort. Chinese exports have done well but in PPE and electronics rather than is normal mainstream exports. Those are reliant on the global recovery.
We have also yet to see how President Xi’s plan to increase domestic consumption will be implemented.
I think there will be plenty of good opportunities in China but sector and timing will be key.
Yellen signals regime change with ‘act big’ call By Ian Harnett co-founder and chief investment strategist at AbsoluteStrategy Research.
Thinks that 19 Jan 2021 marked a new regime change (something that is usually hard to pinpoint). Janet Yellen’s call to ‘go big’. His reason are
1. As an Ex Fed Chair Yellen knows the system and hence we could see a return to a pre -1997 relationship between the Fed and Treasury.
2. A better combination of Monetary and Fiscal policy aid the recovery.
He cities the 1950’s as a guide when the Fed engaged repression whilst the Treasury engage fiscal activism.
Or maybe the Plaza Accord although that resulted in debt driven asset bubbles.
IF both the Fed and Treasury act big and let the economy run hot then that cold generate enough momentum for ‘escape velocity’ that would challenge bonds as the yield curve steepened. But he notes the risk of triggering Japan like, 1980’s debt fuelled rally’s, that could extend today’s stretched multiples.
He’s aware of the risks that Japan went through and the 'decades spent working off debt built-up in the 1980s, rather than the gains investors enjoyed in the middle of that decade.’
He notes the worry parallels and concludes
'Unlike the deleveraging in most previous recessions, US debt levels have increased sharply in the Covid-19 recession. Private sector debt increased by 9.5 per cent of GDP last year, pushing the 10-year growth rate up to 15 per cent of GDP (the fastest debt growth in 50 years).
As the IMF noted in its financial stability update, policymakers have no alternative but to do what it takes to create “a bridge to the recovery”. The worry is this also creates conditions for medium-term financial instability. In which case, it could be a bridge to nowhere.’
As I have said before I think the Yellen/Powell combination is a powerful one. The biggest issue is being able to discern when a short term event turns into a long term trend. The other issue to going be dealing with the markets taper tantrum that will happen when there is a major policy change. That might be the most difficult thing for them.
Opinion Big spending and virus control prove a magical mix
Key is that countries that controlled covid enjoyed good economic performance. 'The reason is obvious: if you do better with the virus, the need for mandatory or voluntary restrictions on daily activity decreases.’
But there was no set relationship. China did well because of manufacturing (PPE and Personal Electronics) as people cut back on services but still bought goods. Spain was hit badly because of its reliance on tourism.
In the US heavy government borrowing mitigated poor virus control.
Those that suffered most had large infections and few fiscal resources.
He notes these broad patterns provide some useful insights but not hard judgements as we are not out of the woods yet.
For most I would say 2021 looks better, the UK that faced initial trouble now benefiting from a fast vaccination roll-out and hopefully durable loosening of social distancing.
For the EU it remains to be seen, initial missteps should be resolved by the summer at which time the impact of its recovery fund should start too.Key is for countries not to be fixated on league tables but 2025 hopefully the impact on the global economy will be seen in perspective.
'Those that suffer the least will have been careful with their nations’ health, bold with stimulus in a recovery phase and sufficiently flexible in enabling people to move jobs and sectors to fit the needs of the post-pandemic world.
Anyone who claims to know what the office, the city or the economy of the future looks like is surely a charlatan. But we know that governments and economies that can adapt quickly will succeed.'
OPINIONs Why economists keep being wrong on policy
"The abiding sin threaded through it all was that of certitude. Perfectly plausible but untested theories, whether about the money supply, fiscal balances and debt levels, or market risk, were elevated to the level of irrefutable facts. Economics, essentially a faith-based discipline, represented itself as a hard science. The real world was reduced by the 1990s to a set of complex mathematical equations that no one, least of all democratically elected politicians, dared challenge.
Thus detached from reality, economic policy swept away the postwar balance between the interests of society and markets. Arid econometrics replaced a measured understanding of political economy. It scarcely mattered that the gains of globalisation were scooped up by the super-rich, that markets became casinos and that fiscal fundamentalism was widening social divisions. Nothing counted above the equations.
And now? After Donald Trump, Brexit and Covid-19, it seems we are back at the beginning. Time to dust off Keynes’s general theory.”
LEX Facebook: content ferment. Facebook unfriends Australia. Key being that news isn’t as important for Facebook as for Google. It notes the Australian approach has flaws but concludes 'Facebook investors should be aware this is not a problem with a quick fix. So long as ad revenues continue to shift to digital platforms, it can shrug off public criticism — just as it did last summer’s boycotts. But the row over paying for news illustrates a point about lobbying power. Newspaper groups often have far more political clout than tech giants that are neither big employers nor taxpayers. Efforts to get Silicon Valley to stump up for news underscores just how regulation will increasingly bite the tech sector.’
Ant has found out the same in China, over time I think a lot more is to come, not least because people are realising their data and content has value.
LEX Baidu: search terms. Struggling against local competition in China after it failed to recognise the importance of mobile over desktop. What it is doing well in is AI and Cloud Services. 'Baidu should continue its search for new themes. Cutting wasteful, defensive investing would help lift ebitda margins of 28 per cent — 9 points below Tencent’s. That could add more pizzazz to the shares as a likely second listing in Hong Kong draws near.'
Software has a role in saving the planet too
Looking at technology for solution of climate issues but its about software and hardware answers. Should also read the FT online Bill Gates: My green manifesto
The billionaire philanthropist offers four bold ideas to help business take on the climate crisis