MARKETs at 2pm Hk time
Nikkei 225 opened lower spiked but the trenched on the PMI data, worked better but then sold down to 27,040 support and saw a small rebound into lunch. PM opened lower and tested 27k support before working back to the lunchtime level. Currently -68pts (-0.3%) @ 27,090
Topix followed a similar pattern but stayed in the green; currently +7pts (+0.4%) @ 1,799
Services PMI Dec 47.7 vs 47.8 Nov (F/cast was 47.2)
Composite PMI Dec 48.5 vs 48.1 Nov (F/cast was 48)
Consumer Confidence Dec 31.8 vs 33.7 Nov (F/cast was 35)
Expectation that Japan will announce a state of emergency tomorrow to cope with covid.
Kospi opened higher and tested to 3,020 but then sold down to 2,980 level has since traded around yesterday’s record closing level; currently +11pts (+0.4%) @ 3,000
Kosdaq followed a similar trading pattern currently +1pt (unch) @ 986
Foreign Exchange Reserves Dec $443.1b vs 436.38b Nov (F/cast was 444b)
Opened flat but traded higher to test 15,200 but failed toi break higher. Eased back to yesterday’s closing level then worked higher to 15,100 level before selling down to 14,944 and then tested 15,000 but found resistance and sold down to 14,840 level before retesting 15,000 but again failed to break above; currently -17pts (-0.1%) @ 14,983
CSI 300 opened higher and tested to 5,430 level but then traded down to 5,340 after PMI data was weaker than forecast. Saw a small bounce into lunch. PM opened flat but working higher currently +19pts (+0.4%) @ 5,387 Data
Caixin Services PMI Dec 56.3 vs 57.8 Nov (F/cast was 56.9)
Caixin Composite PMI Dec 55.8 vs 57.5 Nov (F/cast was 56.4)
HONG KONG Pre market opened at 27,613 -36pts vs +64pts ADR’s Ecommence names +VE with Baba +2.2% and JD.Com +7.4% but Financials were mixed. Markets initial popped to 27,700 but then trended lower to 27,400 at lunch after the weaker than F/cast PMI data. PM the market opened higher and worked back to 27,650 yesterday’s close but found resistant there. Currently -53pts (-0.2%) @ 27,590
Expect a lower open following a mixed Asia and poor China PMI data. Also in focus will be the US Georgia run-off election with pools closed but the result thought to be too close to call.
EUROZONE Services and Composite, PPI
GERMANY Services and Composite PMI, Inflation Rate.
FRANCE Inflation Rate, Consumer Confidence, Services and Composite PMI.
UK Services and Composite PMI, New Car Sales.
Opened slightly lower in Asian time but have eased back; Dow currently -80pts S&P -0.75 and NDX -1.5%. Georgia state run-off election in focus, covid cases and Trump still trying to overturn the US election results.
MBA Mortgage Applications and 30 yr Mortgage Rate, Services and Composite PMI, ADP Employment Change, Factory Orders, EIA Oil Report, FOMC Minutes.
FT FRONT PAGE
Trump leans on Pence to nullify Biden win in bid to retain power. The actions of a desperate man clutching at straws in my view. Trump falsely suggested that VP Pence could overturn the election results by not accepting the certification of Congress. More worryingly for US politics is the divisions that Trump is creating within the Republican party which could have longer term implications. He actions could also impact the results of the run-off senate election in Georgia. At the time of writing the polls have closed but it is too early even for the pollsters to be giving an indication as to which way the voting has gone.
Read also National Guard readied for unrest at pro-Trump rally Security tightened after ex-defence chiefs warn against military intervention
Indonesia’s Tokopedia and Gojek in talks to form $18bn tech champion. Follows the breakdown of discussions between Gojek and Grab its main regional rival. The deal appears to have a lot going for it, not least the fact that they already have some friendly associations where Grab had always been seen as a rival. Softbank is backing the deal having invested in Tokopedia others who heave invested in the companies include Google, Facebook, Microsoft and PayPal of the US, and China’s Alibaba, Tencent and Meituan. Certainly companies with experience of what is required to facilitate success.It would also give diversification rather than just creating a larger ride sharing enterprise. The article notes that neither business is currently profitable but if the talks go well the new entity would look to list in 2H 2021. Watch for more details in the near future.
Foxconn raises EV stakes by helping Byton on first model Foxconn is looking to further diversify from its traditional base in the hope of boosting margins. Byton was hit hard last year as sales dropped and it had to halt operations. Foxconn’s cash and knowledge should help the company. Key for Foxconn is that EV margins are around 10% vs 6% for smartphone assembly.It is also building up a good number of EV relationships which should allow for shared knowledge . +VE
Shanghai stocks close at strongest level since 2008 financial crisis. The driver, the article says, is the perception by on-shore retail investors that stocks are cheap, coupled with an expectation of government support (from comments made by President Xi last year) and the fact that there is a lack of alternatives; especially since the government has continued to curb lending to property. Global investors are being attracted by the strong recovery having managed to contain the covid virus. I would also mention the PBoC’s policy of not reducing interest rates as much as the US or Europe has also attracted international attention.Few expect a pull back as valuations are currently not as rich as they were in the boom five years ago and the PBoC is seeking to keep leverage down too. It also notes that margin financing is less than it was five years ago.It quotes Ronald Wan, chief executive at Partners Capital; who said 'while China’s so-called A share market was likely to continue its rally through the first half of 2021, the draw of onshore equities for both domestic and international investors could fade as Covid-19 vaccines are rolled out in Europe and the US.“If these vaccines work, other countries’ economies will bounce back and we’ll see some sort of diversification from investors [away from China],” he said “At that point, the A share market may see an adjustment,” he added.’
For investors I think that there are still a number of good opportunities in China but one needs to be selective. The recent defaults illustrate that not everything is going well and whilst the government does not want the market to crash it is not prepared to step in and save investors from bad companies. Equally the pulling of the Ant IPO and crackdown on on Alibaba and other Ecommerce names; shows that government policy is still evolving and that Beijing will not tolerate companies that threaten its power in anyway.I would also be cautious because the recent trade data shows that much of what has driven the good growth numbers has been covid related; like medical equipment more than China’s traditional exports. Also domestic retail spending is still not uniform and the employment situation unclear for many industries especially with supply chains being reviewed. But helping the markets are the growing inclusion of Chinese companies into international indexes, coupled with the growth in its domestic savings, pensions and wealth management businesses.Some early investors in China may be looking to diversify out of China but many are new or underweight and so the march higher is likely to continue.
HK’s international banks in a compliance quagmire over activists. Looks at how the US sanctions and the new National Law in Hong Kong are causing issues for the international banks. Key point is that the Banks sided with the US rather than Beijing; being well aware that being barred from the international dollar based financial system was more important than siding with Beijing. Although they would have liked to do both were it possible!
It notes that after some clarification from the Hong Kong regulator the banks announced they were managing the conflict. But then the freezing of a former pro-democracy law maker, after a police request, raised more issues and illustrated how fraught the situation is. HSBC found itself at odds between the HK police, the UK parliament and even US Secretary of State Pompeo. The solution there was to comply with the Hong Kong police request.
The situation has then become worse with the new National Security Law. Under which we may not know it's even happening because it can be carried out in secret. But wait for the first case where China seizes assets in Hong Kong and there inbound be another outcry. The current case against Jimmy Lai could be a case in point; that trial will be watched closely.
FT Big Read. EUROPEAN POLITICS ‘We need a real policy for China’
With Germany pondering a post-Merkel shift in direction, the country will be key to whether Europe works more with the US to defend democracy or seeks to prioritise investment from Beijing. Looks at the past and current issues impacting Europe’s and possibly more Germany’s relationship with China. With Merkel due to step down shortly, who was a big driver behind the recent agreement, the question is who will drive it and how will the new policy shape up.
An interesting read outlining the issues. Notes how Europe has not been able to temper China’s aggressive attitude at home or abroad or on human rights. Also that some smaller EU countries had reservations but Germany/Merkel wanted to get the deal done whilst it held the presidency of the EU.Looks at the US angle and Biden’s approach.It does not mention that whilst the deal has been signed it has not been ratified and that could still be a stumbling block and could take years.
World Bank warns jab delays risk growth hit. In its latest report the lender’s forecast for GDP this year assumes rapid progress on vaccinations. It also expects a 'slow and challenging recovery’ that impacts both advanced and emerging markets. For rich nations it forecasts 3.3% average growth this year and 3.4% for emerging & developing ones; excluding China were it expects growth of 7.9%.
Key concern is that vaccinations, for various reasons, are already running into issues which could delay immunisations and hence hurt growth. It also mentions the the South African strain could lead to vaccine resistant variants; which is something that has not really been discussed to date.If those problems escalate it expects the global economy to contract for a second year. “Policymakers face formidable challenges — in public health, debt management, budget policies, central banking and structural reforms — as they try to ensure that this still-fragile global recovery gains traction and sets a foundation for robust growth,” Mr Malpass said.
From the fact that so many markets are trading near highs it suggests that most investors are not as concerned as the World Bank report suggests they should be. There have been a number of recent articles suggesting that investors are expecting the post pandemic economy to be in better shape than the global economy was this time last year. Because of the pandemic we have forgotten many of the economic issues but that doesn’t mean they have gone away.
On the positive side though the pandemic has radically changed the way many businesses conduct themselves and that could be a good thing.I think that one of the biggest issues is still going to be employment. Whilst removing working is now more acceptable the issue will be about whether people have the right skill sets or can be trained to acquire them.
Read Virus lays waste to young Turks’ job hopes The 15-24 age group was struggling even before Covid-19 caused a crisis; a case in point.
But its not just a Turkish problem and this week we get US Non Farm payroll numbers which could be worse than forecast and show that the problem is more global. In China the problem is exacerbated by Beijing's support for the SOE industries.
US manufacturers record fastest growth in two years. Looks at yesterdays ISM Manufacturing data which was the best since Aug 2018. But it is at odds with other data which suggests that the US economy is slowing. The ISM report did note “Survey committee members reported that their companies and suppliers continue to operate in reconfigured factories, but absenteeism, short-term shutdowns to sanitise facilities and difficulties in returning and hiring workers are causing strains that are limiting manufacturing growth potential,”
For investors it's another encouraging indicator and with the roll out of vaccinations the factors currently limiting the sector should ease.
S Korea protests to Iran over tanker seizure. Vessel incident puts focus on dispute over $7bn of Tehran's cash held in Seoul banks. Key here is the weaponisation of the US dollar. The money is trapped because of US actions and can only be released on the instruction of the US Treasury.
The matter seems to have come to a head as Tehran wanted to use some of the money to buy vaccines, which is a legitimate reason to release the money but it still requires US Treasury approval; which to date has not been given.Whilst S Korea is trying to negotiate the release it has also diverted one of its anti piracy vessels in the region to the Straits of Hormuz.
It really does illustrate the strength that the US has whilst its currency is the reserve currency of the world and highlights why China is so keen to either make its currency more international or push for the adoption of a digital currency that would protect it from US interference.
Distressed debt specialist Marks warns over US corporate borrowing burden. Companies may find themselves excessively indebted after the pandemic even if their businesses rebound, Oaktree Capital founder Howard Marks has warned, underlining the strain facing corporate America.
New Covid strain will hit economies and widen inequality Summary 'Central banks need to carefully consider their response to greater volatility in markets, including currencies, as the appropriate choices vary from country to country. On financial sector issues, they must improve their understanding and prudential supervision of non-banks lest excessive risk-taking there undermine economic well being. Investors will probably maintain an attitude that has served them well: put your faith in central banks’ ability to shield financial markets from any and all economic and corporate shocks.
This will encourage more irresponsible risk-taking by investors and debt issuers. It will also fuel investment approaches that fail to account for a longer term in which governments and central banks face huge and persistent policy and operational challenges.'
Brussels told to push UK harder on tax and money laundering. So it starts, the Brexit deal is in place but now the practicalities. Brussel is trying to prevent the UK from embracing a ’Singapore on Thames’ model with regard to money laundering and tax avoidance. It quotes a partner at Linklaters who makes the point 'said threats to withhold equivalence were tempered by the fact UK financial services companies were already having to adjust to life without it. The UK would also struggle to ease standards because of its commitments to global banking standards.“The UK has control over its regulatory regime and is deciding how best to use that autonomy but there will always be a strong anti-money laundering regime for attracting international investment. [Authorities] want the UK to be a credible place to do business.”’
The reality is that Brussels will continue to try and dictate to the UK in order to try and protect what it sees as its turf. Rather than look to see what is the best an most efficient way for businesses to operate.
Developers seek ways to dodge Apple privacy rules
• Update will threaten ad revenues
• Risk of App Store ejection weighedLooks at how app developers are seeking to get around Apples draconian privacy rules.
Small producers find big rewards in abandoned pits. Rising price of steelmaking ingredient boosts projects jettisoned by top operators. The current price of iron ore is benefiting a number of operators outside the big four (BHP, Rio Tinto, Vale and Fortescue).
Pension funds need a radical rethink. 'Good pensions finance good infrastructure. Good infrastructure pays for good pensions. This crucial relationship only gets noticed when they both go missing — as the US, UK and several other countries are finding out. Having largely dismantled the defined benefit corporate pensions of yesteryear, they now struggle to turn fragmented individual pensions into the long-term investments their savers and their economies require. Fixing this is vital. It will not be easy.'