MARKETs at 2:30pm HK time
Nikkei opened flat in line with the futures and worked higher though the morning to 28,800 level. Pre market data was better than expected. After lunch the market was further boosted by the good China trade data. The market tested 29,00 around 2pm but failed an quickly sold down to 28,600 before a small bounce. Currently +218pts (+0.8%) @ 28,668
Topix traded in a similar pattern Currently +5pts (+0.3%) 1,870.
Machinery Orders Nov -11.3% YoY vs +2.8% Oct (F/cast was -16%) Machinery Orders Nov +1.5% MoM vs +17.1% Oct (F/cast was -7%)
PPI Dec -2% YoY vs -2.2% Nov (F/cast was -2.1%)
PPI Dec +0.5% MoM vs 0% Nov (F/cast was +0.3%)
Kospi opened flat and traded sideways around flat (3,128/3,159) Currently flat at 3,146
Kosdaq opened flat but trended lower to 974 by mid morning. It then traded sideways currently -3pts (+0.3%) 977
Export Prices Dec -5.4% YoY vs -4.6% Nov (revised from -4.9%)
Import Prices Dec -10.2% YoY vs -10.3% Nov (revised from -10.6%)
Opened lower but initially rallied back to 15,730 but hit resistance and sold down to 15,620 level before working slowly higher through the session to 15,750 around 12:30pm but then sold down to 15,700 and traded sideways to close -63pts (-0.4%) @ 15,707.
CSI 300 opened lower with concerns over the covid outbreak and the potential impact on the recovery along with the poor vehicle data which endorsed those concerns and worsening US relations as US bans Xinjiang exports. Making for increased caution ahead of the trade data. Markets sold down to 5,490 but then saw a bounce after the better than expected Trade Data back to 5,545 level, but tested there a couple of times before selling down into lunch. PM opened lower and traded sideways around the 5,500 level. Currently -95pts (-1.7%) @ 5,482
Balance of Trade Dec $78.17b vs $75.4b Nov (F/cast was 65b)
Exports Dec 18.1% YoY vs +21.1% Nov (consensus was +15%)
Imports Dec +6.5% vs +4.5% Nov (Consensus was +5%)
After market Wednesday
Vehicle Sales Dec +6.4% YoY vs +12.6% Nov (F/cast was +12%)
Pre market opened at 28,408 +173pts vs -39pts ADR’s.
Market initially sold down to 28,300 (on news of more arrests but he national security police in dawn raids) before working better into lunch. PM opened flat and eased back top before working higher to test 28,450 level but unable to break above and eased back to 28,410 level. Currently +125pts (+0.5%) @ 28,373
E-Commerce names +VE on news that US will not blacklist them. Telcos +VE on news Tracker fund to resume purchases
Indicating a higher open FTSE is seen opening 15 points higher at 6,762, Germany’s DAX 59 points higher at 14,009, France’s CAC 40 up 19 points at 5,684 and Italy’s FTSE MIB 45 points higher at 22,686, according to IG.
EUROZONE ECB Monetary Policy Meeting Accounts.
GERMANY GDP Growth, Government Budget
FRANCE No data due
UK No data due
Opened slightly higher in Asian time Dow +46pts, S&P +0.2% and NDX +0.1% and rose through the session currently Dow +66pts S&P and NDX +0.2%
Initial Claims, 4 week average Claims, Continuing Claims, Export & Import Prices.Earnings: BlackRock, First Republic, Taiwan Semiconductor, Delta Airlines
Trump business empire in peril as New York axes city contracts
• President faces isolation • House votes on impeachment • Family saddled with $1bn debtItalian government plunged into crisis as three ministers quit ruling coalition
More variants set to test Covid vaccines’ efficacy Epidemiologist says too early to know how current jabs will cope with threat.
Looks at the warning from Salim Abdool Karim, chairman of South Africa’s Covid-19 ministerial advisory committee, that there would be more variant strains and that it's too early to know whether the existing vaccines would be able to provide immunity.'
Prof Abdool Karim, the epidemiologist who led South Africa’s fight against HIV/Aids, explained that viruses evolved as they infected people with partial immunity in order to escape recognition by their antibodies.’
An interesting read and a warning really not to assume everything is going back to normal anytime soon.
China curbs travel for 23m to contain infections rise. As China tried to contain the latest covid outbreak ahead of Chinese New Year, which is the largest annual mass migration when hundreds of millions of people travel from the cities to the rural provinces to see family.
It notes that SOE’s and government agencies have resorted to docking pay for employees who do not follow the rules; which has used some resentment. Some local governments are offering incentives to residents not to travel. Private companies have not had such severe penalties.
For investors the immediate hit will be to the Airlines and Railways and the Retail names as people reduce spending on Chinese New Year gifts and food.
It will also put the much heralded recovery in question. Today’s traded data was much better than expected but it is still being driven by demand fro medical supplies and electronics rather than China’s normal export mix. It also probably reflects some pre Chinese New Year (CNY) ordering to cope with the shutdown of Chinese factories over the CNY period.
It will be interesting to see if China proposes a change to the holiday; if people cannot travel then there is little point in closing businesses for the long holiday.
Another problem it might reveal is the true ability of the Chinese vaccines, recent data has raised questions and that is likely to be -VE for the Pharma makers; not just over the covid vaccines but their other products as well. The Chinese public has a long term suspicion about medicines due to past scandals. A failure on this scale would not just hurt the Pharma companies but would have serious implications on the Government which is already under pressure with US relations wider trade relations with a number of other countries and probably a dilemma over Taiwan.
Biden picks veteran expert for newly created role of Asia tsar. With veteran foreign policy expert Kurt Campbell selected for the job. It reflects the importance to the new administration of Asia and China in particular. It shows a commitment to trying to integrate Asian foreign policy across a number of government agencies and I think should be good for Asia.
It notes that 'Mr Campbell is close to Antony Blinken, incoming secretary of state, and Jake Sullivan, incoming national security adviser. He is married to Lael Brainard, a Federal Reserve governor who was expected to become Treasury secretary but lost out to Janet Yellen, the former Fed governor.’ Reflects what a small world US politics can be. But those close ‘informal’ links could be very useful shaping policy and ensuring good communication.
It also states that 'Along with Mr Sullivan, Mr Campbell, who has close ties to policymakers in Japan, is viewed as being one of the more hawkish Democrats on China. In an article in Foreign Affairs magazine two years ago he said Washington needed a “clear-eyed rethinking” of its approach to Beijing after years of the US foreign policy establishment wrongly forecasting China’s path.’
I think that for China is likely to mean no easy path ahead. Existing Trump policies are unlikely to be rolled back without securing manful concessions. A more unified approach to dealing with China both across US Govt agencies but also with international allies. That will really determine whether we see China truly open up to international companies or becomes more inwardly focused.
Cooper tipped for StanChart CEO role. He currently runs the advisory and trading unit which last year saw significant outperformance during the pandemic. Other contenders were Ben Hung, who is regional chief for Greater China and North Asia, and head of retail banking and wealth management. Another previously contender was Judy Hsu when she was regional CEO for south-east and south Asia but she has now moved to head of consumer, private and business banking.
Two key points being the importance of Asia to the bank and I would extend to most banks currently.
Standard Chartered has gone through an overhaul under Mr Winters and still faces a number of issues not least its relationship with China and Hong Kong but Asia remains the key to its success going forward. That I think applies to a number of international banks; getting Asia right in the coming years will be the determinator for success. Having good people with knowledge and experience will be the key.
Treasuries dance to different tune as fiscal policy prevails. It quotes Richard McGuire, head of rates strategy at Rabobank who notes “For many years, bond markets have followed a ‘bad news is good news’ mantra, now it looks like bad news for the economy is bad news for bonds, too.”
An interesting read because it also because a number of contributors are all referring to the building up on inflationary forces. Mr McGuire summaries it well by saying for now, bond markets are “blind to the deterioration with respect to the virus, Investors only have eyes for a vaccine-led recovery.”
Trump’s attempt to delist China will only backfire Works from the basis that Trump's actions are driven by an attempt to 'slow modernisation of China’s armed forces by depriving military-linked companies of US capital’.
The writer Jesse Fried the Dane professor at Harvard Law School, correctly notes that delisting Chinese companies; like the Telco’s is not going to hurt their ability to raise money in Hong Kong. He even says 'The idea that barring purchases of these telecoms companies’ stock will affect China’s military is laughable but their US investors are not laughing.’
But I think that also shows his premise is wrong. Its not about slowing the military. I think Trump is seeking slow China's commercial ambitions and using the link to the military as the excuse.
The fact that it has hurt US investors in the short term is true and it is equally true that mainland and other international investors have picked up the stocks ‘on the cheap” but the key is the threat of restricting US capital. Just look at the impact on ZTE and Huawei to see the real potential of Trumps actions. Not every Chinese delisted company is going to be able to easily expand its investor base to non US clients. He also notes that some of the audit oversight is a positive move in an attempt to prevent fraud but says 'But the likely benefits are exaggerated as American investors still face risks. For example, unscrupulous China-based insiders who steal assets are largely legally unreachable from the US.’
He also thinks it will allow some Chinese companies to go private at cheap valuations; again hurting US investors.
In his view 'Trump’s no-buy order should be applied only when it stands a chance of affecting China’s military capabilities — which may well be never. And as for audit inspections, America could ban new listings of China-based companies as long as China blocks the PCAOB. Any currently listed companies could remain but they and their insiders could be barred from selling additional equity to US investors. US investors could continue trading shares. But no new money would flow to China.
This approach does not send as strong a message to China, making it less politically attractive. But it is likely to better advance US interests, which are being sacrificed for anti-China grandstanding.’
I think that Trump’s action have the Chinese very worried it has highlighted their dependence of US tech and the denial of access to that Tech can cripple even their largest companies. The threat of delisting is a small concern but the denial of access to US capital is more of on issue. Hong Kong is a liquid market but it cannot meet all of the Chinese needs; the disappointment of the Chinext index and to an extent the Star Board demonstrates that too. If China’s domestic markets are unable to meet the capital needs then it will need to look elsewhere and that can be costly. The recent credit and default scandals further highlight the problems that even well establish Chinese companies have.
Trump’s actions have additionally given Biden’s administration a whole raft of new tools with which to negotiate. It’s not directly about slowing the Chinese military but China’s commercial growth. Remember this started when President Xi announced the Made in China 2025 programme and the world suddenly realised what was at stake.
Editorial Crafting a fiscal policy fit for all seasons Spending approaches should be ready for a change in circumstances. Supports the calls from Lagarde and others that prematurely removing support by government should avoided. Notes that previous consensus can be wrong as seen post the 2008 crisis.In summary 'a looser fiscal approach must not change the role of central banks. Inflation-targeting central banks should only “print” money to hit their inflation targets and not finance government spending: quantitative easing is justified by low inflation and not high deficits. Interest rates should be set based on the needs of the economy and not finance ministers. UK investors are already questioning whether the Bank of England is simply offsetting government borrowing. Central banks must even more jealously guard their credibility when debts are high. The facts have changed, but not everything else should.'
For Interest Mittal the erstwhile monarch of steel turns gaze to emerging markets realm
Business worth €22bn surfaces from pandemic leaner and fitter despite losing top spot to China.An interesting read into the steel sector. The worlds largest is currently Baowu the parent of China’s Baoshan Iron & Steel. Other major players are Nippon Steel, Nucor of the US. Key going forward are rhe developing markets rather than the established Western ones.
Europe regulator warns banks against dodging post-Brexit trading rules. Comes because the EU has refused to grant “equivalence” rulings to most sectors of Britain’s financial services industry; even through only three weeks ago there was. It looks at the loophole of reverse solicitation when institutional investors formally ask for advice and services from providers outside the EU. Banks say they have been sparing in using that as they are aware of the potential heavy penalties.Among the communications that Esma considers potential solicitations include press releases, internet advertising and brochures as well as phone calls or face-to-face meetings.That really shows the vindictiveness of the Brussel approach. Not interested in efficient and effect business solutions to serve the best interests of European clients as trying to undermine the UK and increase costs for many European clients.
FT BIG READ. GERMAN POLITICS A battle for the soul of the CDU
Under Angela Merkel the CDU turned into an election-winning machine but lost some of its identity. The outcome of its leadership election will shape key policies such as the economy and European integration.