MARKETs @ 1:30pm HK time
Nikkei 225 opened higher and has traded sideways effectively in the range 28,700/800 Currently +235pts (+0.8%) @ 28,759
Topix Opened higher and worked higher first to 1,867 then eased back before pushing to test 1,870 but failed to break above and trended lower to 1,860 at lunch. After lunch trading sideways 1,860/1,865; currently +9pts (+0.5%) @ 1,859
BoJ Rate Decision unchanged at -0.1%
Balance of Trade Dec Yen 751b vs 366.8b Nov (F/cast was 800b)
Exports Dec +2% YoY vs -4.2% Nov (Consensus was +2.4%)
Imports Dec -11.6% YoY vs -11.1% Nov (Consensus was -14%)
Stock investment by foreigners Yen 169.9b vs 512.5b prior revised
Bond investment by foreigners Yen 272.4b vs 736.2b prior revised
Pre market PPI beat forecast
Kospi opened higher at 3,123 and rallied to 3,146 then traded sideways in that range until around 1:30pm when it pushed higher to test 3,150 but failed to break out. Currently +34pts (+1.1%) @ 3,149
Kosdaq opened higher traded up to 985 in early choppy trading but then sold down to 975 before rebounding. Then traded sideways in the range 978/980; currently +4pts (+0.4%) @ 981.
PPI Dec +0.7% MoM vs 0.0% Nov (F/cast was -0.1%)
PPI Dec +0.1% YoY vs -0.3% Nov (F/cast was -0.7%)
Opened lower despite yesterday’s good Export data but worked higher through the morning to test 16,200 but failed to break above and eased back to 16,032 before working higher again and retesting 16,200 but hitting resistance Closed +384pts (+2.4%) @ 16,187
CSI 300 opened higher helped by good FDI data aftermarket Wednesday and hopes of better relations with the US under President Biden. Worked higher initial but then eased back before rallying into lunch at 5,574. PM has eased back slightly Currently +110pts (+2%) @ 5,586
Pre market opened @ 29,952 -11pts vs +78pts ADR’s but then rallied above 30,000 as recent shorts covered. Sold down to 29,800 level before rebounding and then oscillated around 30,000 level with a burst to 30,135 mid morning before easing back. 30,000 level at lunch. PM opened higher currently +123pts (+0.4%) @ 30,080
Some Chinese Financials still weak, E Commerce mixed, Pharma names +VE
BYD COMPANY (01211.HK) +5% has completed the $29.8-billion financing through share placement.
Expect markets to open higher with a rally as Biden is sworn in.
EUROZONE ECB Interest Rate Decision, Marginal Lending Rate, ECB Press Conference Consumer Confidence Flash.
GERMANY No data due
FRANCE Business Confidence, Business Climate Indicator
UK CBI Business Optimism and Industrial Trends Orders, BoE Credit Conditions Survey
Opened in Asian time Dow +14pts, S&P +0.04% and NDX +0.1% have ticked slightly higher Dow +24pts, S&P +0.05% and NDX +0.15%
FT Front page
‘Democracy has prevailed’
• Call for Americans to come together to end ‘uncivil war’
• Salvo of executive orders to unpick predecessor’s legacy
No fanfare for Trump as he boards final Air Force One flight to Florida
Lots of articles on the change in US Administration.
Trump leaves White House after issuing Bannon pardon
Moderates emerge as Senate dealmakers Notes that centralist lawmakers are the new power brokers as the Democrats take control of the Senate but only with a casting vote from the VP Kamala Harris. So compromise is likely to be a key element of getting initial legislation passed which many view a s a good thing.
‘Mr Fix It’ put in charge of tackling coronavirus crisis. Looks at the appointment of Jeff Zients to be the co-ordinator of his Covid-19 task force, a position that will give him oversight of everything being done across the federal government to tackle the virus, from deciding travel restrictions to managing the vaccine supply chain. A former consultant, entrepreneur and even deli owner seen as the perfect choice to fix the mess left behind by the Trump administration. He has not medical knowledge but is good at turning around projects; suggests that he will act like the conductor of an orchestra. Notes that his job will not be easy and many are likely to view him with suspicion by some.
Raft of Trump policies axed on first day. President Biden acts to rejoin climate pact and halt building of Mexico wall along with 13 other executive orders.
Business warns on tax and wage increases. Whilst business and the markets welcomed Biden with support for his policy to control; covid and stimulate the economy and a number of other policies but it is not going be easy on everything. Taxes and regulation are going to be the main areas of contention but also the intention to raise the minimum wage which is likely to be fiercely contested by business.
EU urges refocus on transatlantic relations. The expectation of a new dawn and a repairing of the relationship between the US and Europe but it is likely that even as relations improve Europe will be mindful of the need to be able to stand alone if necessary in many areas of policy. It notes that Charles Michel, president of the European Council of EU leaders, laid out five priorities for the EU to pursue with the US: boosting multilateral co-operation, fighting Covid-19, tackling climate change, boosting growth and joining forces on security.
Opinion Dear Mr Biden, debt and deficits still matter and After Trump, the biggest job is to restore US institutions
China escalates fight against latest outbreak. With rising cases coming ahead of the mass migration that takes place in China at the lunar New Year the authorities are stepping up their measures to control the spread of the virus.
At the same time China is contesting with the World Health Organization (WHO) about whether the virus really did start in Wuhan. They are suggesting that the US Fort Detrick where the US army conducts germ research should be investigated as the source.
Hua Chunying, China’s chief foreign ministry spokesperson have been repeatedly enraged by the Trump administration’s suggestions coronavirus may have escaped from a Chinese research facility in Wuhan.
State Media has also been running stories about how western vaccines are not as good as Chinese ones; even though the Chinese have not been forthcoming with the trial details of their vaccines.
It notes that Biden is unlikely to engage in the same war of words that Trump did but take a more researched and measured approach. Also that Biden has committed to rejoining the WHO, reversing Trump’s decision.
BUT that Antony Blinkin the new Secretary of State did agree with Mr Pompeo’s statement that the Chinese repression of the Muslim Uighur amounted to genocide; so there is unlikely to be any let up in pressure on that front.
Ma appears Alibaba stock rises after first public sighting of billionaire since Ant’s cancelled IPO. His first appearance since the Ant IPO was pulled. His appearance prompted an 8% rally in Alibaba’s stock yesterday. Seen as a positive sign by the market that Mr Ma is still alive and that worse case scenarios are unlikely to play out.
In the video Mr Ma says '“My colleagues and I have been studying and thinking, and we have become more determined to devote ourselves to education and public welfare,”’
Also yesterday China proposed more rules on the payments business which is Ant’s main line of business; involving tighter control of user data. The new rules could also set the stage for possible antitrust action against Ant’s and Tencent’s online payment businesses if it was deemed that they abused their market position.
LEX Alibaba: Jack’s back. In summary thinks the chance of the Alibaba bond now going ahead are better. That the outlook for the company is better but there are still tensions.
In Summary 'Alibaba shares have lurked in the gloom at 23 times forward earnings, the lowest since listing in 2014. Mr Ma’s return provides an entry point for long-term investors. But they, like Mr Ma, should remain wary.'
Richemont notches up 80% rise in China sales Asia and Middle East making up for weakness in Europe. The results underline that those with plenty of money are continuing to spend on luxury goods even if they can’t spend on travel and restaurants. The results also show that larger groups are doing better than smaller ones. It notes 'They have cut costs quickly, held virtual fashion shows, and catered to their best clients by selling over video and text chats.’
The smaller players mentioned are Tod’s and Salvatore Ferragamo, but it also notes that Burberry has been impacted; with Q3 SSS -9%
Interestingly China was +80%, Europe was -20% and US was flat.
It also notes that 'Richemont did not give any guidance for the coming quarter, but its chairman and largest shareholder Johann Rupert warned last year that Covid-19 would cause “grave economic consequences” for the sector for up to three years.’
Three years is an interesting time frame because I think many investors are expecting a much quicker return to normal. But the reality is likely to be that the impact from covid, not least its ability to mutate, means that some forms of social distancing are going to be with us for much longer.
Read also Pearson cautious despite sales growth. A firm that was hit hard by exam cancellations and lockdowns. But under new CEO Andy Bird it saw a 30% in its online learning business and managed a 4% increase in sales in Q4.
The key is adaptability and willingness to change business practices.
Tokyo Stock Exchange faces shake-up with shedding of cross-shareholdings. The key driver looks to be the TSE's overhauling its current 6 boards into 3 tiers (prime, standard and growth).
To be in the desirable ‘prime’ tier will depend on the March 31 level of free-floating market capitalisation, excluding cross-held shares.
Also encouraging the change are a number of proxy adviser's recommendations which are likely to prompt companies to sell down. The article thinks that the sell down could occur in the next few weeks to make the TSE March deadline and possibly to help with end of year performance, especially as the Japanese markets are trading at highs.
It notes the practice is disliked by fund managers but many companies say it is needed to maintain business relationships. But whilst nearly 11% of Japan’s listed companies have a listed shareholder owning a slice of more than 30% the number in the UK is 0.2% and in the US 0.9%; which clearly undermines that argument. Most people view it as a way for poor management to remain secure; as seen in a number of recent activist moves against companies.
Goldmans thinks 'about 9 per cent of companies listed on the TSE’s first section will not meet the ISS requirement, including advertising group Dentsu, electronics and ceramics manufacturer Kyocera and conglomerate Mitsubishi Heavy Industries.’
But it also notes that some are warning that the powerful Keidanren business lobby is likely to try and resist the reform.
For investors there are a number of risks, companies being excluded from the prime tier being a major one. The influence of the Keidanren is another key swing factor. As ever Corporate Japan needs to reform but remains reluctant to do so.
Look again at the financial system’s dangerous faultlines by Paul Tucker
Another reminder that the world pre covid was not in good shape and the west cannot afford another financial crisis. Notes the system almost collapsed in March/April and required significant Central Bank action.
Suggest three things need to be sorted
First, central banks need to dust down the plans developed a decade ago for them to act as market makers of last resort — buying and selling securities, subject to an insurance premium — when trading liquidity evaporates. Key they don’t need to buy the whole market; Draghi showed that words can be enough. It is not QE to stimulate but about restoring liquidity.
Second, the plumbing and design of the main government bond and bond-lending markets need repairs, and possibly overhauling, if they are to cope with today’s extraordinary occasional bursts in selling activity.
Third, and most significantly, the spectre of excessive leverage and liquidity mismatches among some types of funds and other investment vehicles really must now be addressed.
Worth a read.
Busy traders lead Morgan Stanley to record year
• Quarterly earnings show rise of 51%
• Share repurchases poised to resume
Notes the good results were driven by trading and the fund raising boom that has taken place in the US. It also notes the heavy investment in Wealth Management with the acquisition of ETrade resulted in increased revenues but a drop in profits as the costs of integration impacted. A standout from the banks has been the increase in equity trading; Morgan Stanley’s increased 30% which was lower than that at Goldman’s Citi or JP Morgan but still significant.
US finance chiefs weigh how to spend vast corporate cash piles. Executives look at priorities for the $2.5tn they borrowed from bond investors in 2020. Some are still burning though the cash; like the airlines. With interest rates so low they can’t keep it at the bank and profit from it. So some are considering repaying the debt but there are usually penalty cost involved. Buybacks are seen as a popular option but others are thinking of investing it either by direct investment in their own business or via acquisitions (Mentions Home Depot buying US Lumber).
An interesting read.
Also read LEX US cash mountain: the agony of choice