Apologies for the brevity problems with my FT account.
MARKETs At 2pm HK time
Oil higher as API stocks change came out after market US time and should a significant drop. China’s Industrial profits beat forecasts, Japans Leading Economic Index and (F/cast was 96.6)Coincident Index data was inline. S Korea Consumer confidence beat.
Nikkei 225 opened higher and tested 28,755 in early trades but failed to break above then reversed and trended lower with support at 28,540 before a small bounce into lunch. PM opened higher after data in-line and market trading sideways 28,600/650. Currently % +78pts (+0.3%) @ 28,625
Topix traded in a similar pattern currently +11pts (+0.6%) @ 1,859
Leading Economic Index Nov 96.4 vs 94.3 Oct (F/cast was 96.6)
Coincident Index Nov 89.0 vs 89.4 Oct (F/cast was 89.1)
Kospi opened slightly higher and tested to 3,180 mid morning but failed to break above, sold down to 3,120 before bouncing back to flat . Currently +4pts (+0.1%) @ 3,142
Kosdaq opened higher and retested 1,000 level in early trades but unable to break above and sold down to 985 level before bouncing back to 998 but again failed to move higher and reversed back to 985 level. Currently seeing a small bounce -5pts (-0.5%) @ 989
Data Pre Market
Consumer Confidence Jan 95.4 vs 89.8 Dec (F/cast was 91)
LG Display reported the fourth-quarter operating profit at a three-year high KRW685 billion (roughly USD622 million), beyond the market estimate; helping sentiment.
Taiex opened higher and tested up to 15,840 in early trades but lacked momentum and reversed and sold down to 15,640 level before trading sideways from late morning but the from 12:30 saw a rally to close +43pts (+0.3%) @ 15,702
CSI 300 opened lower with caution ahead of the industrial data and then briefly tested to 5,520 in early trades before selling down to 5,500 level. Around 10:15am the market saw a sharp rebound before working back to flat just before lunch. PM opened slightly higher at 5,520 level and has traded sideways Currently +6pts (+0.1%) @ 5,519
Investors still wary over US/China relations and the covid outbreak in the run up to Chinese New Year.
The PBOC mounted the RMB180 billion seven-day reverse repos today with a bidding interest rate staying flat at 2.2%. There was RMB280 billion of reverse repos due today, hence the single-day net withdrawal amounted to RMB100 billion.
Data on the open
Industrial Profits (YTD) Dec +4.1% YoY vs 2.4% Nov (F/cast was +3.2%)
Pre market opened @ 29,557 +165 pts vs +282pts ADR’s broadbased rebound
Initially ticking slightly higher as some recent shorts covered but then reversed and sold down to 29,190 level at 10:15 am before rebounding to around flat and trading sideways with a slight uptick going into lunch. PM opened higher and currently trading sideways around 29,425 level +87pts (+0.3%)
Sentiment cautious on potential for more lock downs.
Autos weak as a BYD Executive said he would reduce his stake bono more than 1m A shares but CNOOC rebounding; signs of more mainland support.
But caution ahead of FTSE Russell announcement on its global equity index series, in hope of further guidance from the U.S. Office of Foreign Assets Control, media reported.
I would expect markets to open cautiously higher after good US earnings. More earnings ahead and the FOMC meeting in focus.
GERMANY Consumer Confidence
FRANCE Consumer Confidence, Unemployment Benefits and Jobseekers Total.
Opened in Asia Dow +30pts, S&P +8pts (+0.3%) and NDX +93pts (+0.7%) after good Microsoft numbers. But have eased and currently DOW and S&P now negative and NDX +68pts
Data MBA Mortgage Applications & 30 yr Mortgage Rate, Durable Goods, EIA Oil Stocks report. FOMC Rate Decision and Press Conference.
Earnings: Facebook, Apple, Tesla, AT&T, Boeing, General Dynamics, Whirlpool, Norfolk Southern, Blackstone, Nasdaq, Anthem, Abbott Labs, Textron, Corning, Hess, VF Corp, Samsung, Teradyne, Canadian Pacific Railway, Raymond James, Levi Strauss
Microsoft shares hit record on work-from-home revenue boost. Tech group beats forecasts on gaming boom and better-than-feared Windows sales. The driver seems to be the boom in PC sales from the surge in gaming but also in its cloud services. But the company also pointed to more normal IT buying patterns emerging after a year of crisis. CEO Nadella noted structural changes from many customers turning more to digital operations and new ways of doing business. It also gave a positive outlook for the next quarter.
It was one of several good reports overnight and should give investors confidence that we are going to see more ahead. THE S&P is now trading around 22x 12 month forward PE with questions being asked about what will drive it higher. That in my view is the continued low interest rates and ongoing US stimulus. The vaccination roll out and rising employment are likely to add to the momentum. Today’s FOMC press conference is likely to see Powell say the at the Fed remains committed to more of the same. But watch the VIX which has been remarkable stable recently but is still worth keeping an eye on. The source of an upset to the VIX is likely to be the bond market as rates at the long end creep higher.
Worth noting 3M’s good results driven by demand for masks and respirators but growth slowed. Johnson and Johnson also beat and Sid they expected to announced their late-stage drug trial results next week. A number of these companies may have to re position after mass vaccinations take place and the covid virus is brought under control and demand for masks and respirators eases.
Ant plans sale of prized US asset as user data scrutiny intensifies. Biometric security firm EyeVerify ‘targeted’ as Chinese fintech raises capital after halted IPO. The firm is US based an would provide a good opportunity to raise funds. Rumour is that a sale could take place in the first half of this year. The technology scans people’s faces as passwords for mobile services. The data remains on the smartphone and is not central collected or stores according to an executive. Worth noting that the Alibaba US$8bn bond offering is still in the wings but progress on that is seen to be linked with Mr Ma and Ant’s status with Beijing.
Federal Reserve’s first meeting of 2021: five things to watch
Central bank takes stock of pandemic-battered economy with Biden administration in place
Economic turning point? Has the economy continued to loose stream as Powell was saying last time; Unemployment remains at elevated levels and Retail Sales have remains subdued. The prospect for the recovery and the impact of mass vaccinations suggests a strong 2H, watch for comments on this.
Additional Aid Forthcoming? Biden’s relief package of $1.9tn is under risk of being watered down by Republicans but it still likely to be at worst $1tn according to strategists at Natixis, which is still a big boost. The question now is whether Powell feels more aid is needed or is the amount proposed excessive.
Taper Talk? Market remain oversensitive to any idea of scaling back support even in the event of a robust recovery. So far Powell has sought to ease concerns on this matter but at some point the Fed will have too act and it would probably be in the Fed’s interest to start preparing the markets to understand under what circumstances that may happen.
New faces New members will be installed; 'The annual rotation brings in Atlanta Fed president Raphael Bostic, Charles Evans from Chicago, Mary Daly from San Francisco and Richmond’s Thomas Barkin. They will replace Fed regional bank heads from Philadelphia, Cleveland, Dallas and Minneapolis.’ Most think the new members are slightly more dovish, so policy is unlikely to change from its accommodative stance. The markets are also waiting to see who Biden appoints to the board after the Senate blocked Judy Shelton.
New Treasury Secretary. Powell may also take the opportunity to mention about the expected relationship with Yellen going forward and whether some of the facilities that Mnuchin cancelled at the end of 2020 will be resurrected or new facilities arranged. That will be key for the US SME’s.
China pours money into green Belt and Road projects
Renewables account for half of Beijing’s energy investments in 2020 but coal share also grows. Notes that wind, solar and hydropower made up 57% of the total investment according to research from the International Institute of Green Finance at the Central University of Finance and Economics in Beijing. But coal investments also rose and now account for 27% of the total, from 15% in 2018. It also showed how Chinese investment into BRI emerging economies dropped 54% YoY, which is faster than the expected decline in global flows. That may reflect the pressure that Xi has come under regarding overseas investment at a time when the Chinese domestic economy is facing significant issues.Coal will remain an issue not least because its cheap but also because in many areas it is locally available. Hydro is an area of contention; since its carbon free but often flood forest areas and also have other impacts both on climate and environmentally.It also highlights that 'A number of countries critical to the BRI, including Egypt, Pakistan, Bangladesh and Vietnam, are drawing up plans to ensure their economic recoveries are environmentally friendly.’ The recent pledge by President Xi 'to ensure China’s carbon dioxide emissions peak before 2030 and reach net-zero emissions by 2060 has revived hopes that Beijing will play a big role in achieving Paris climate agreement goals.’ On its domestic side there remain concerns about the amount of money China is spending on coal fired power stations. Its stated line is that the new ones are more efficient than the old ones which is a good thing; but it approved new new coal power plants in 1H 2020 than at any time since 2015. There is no mention of the number of older power stations being decommissioned.It also said that it installed 120 gigawatts of wind and solar power in 2020, more than double the year before and nearly four times the UK’s installed capacity.
Renewables have been a popular sector for investors recently on the governments stated polices. Biden he has said that he will hold China to those pledges although I think actual enforcement will be difficult.