MARKETs @ 1:30pm
Opened higher but trended lower after Trump tweeted the US Stimulus bill as a disgrace and he wanted Congress to amend it. Market found support at yesterday’s closing level and saw a bounce but eased into lunch. PM opened higher and worked higher back to 26,550 level but now easing lower. Currently +83pts (+0.3%) @ 26,521
Topix traded in a similar pattern but dipped below yesterday’s close before finding support. Currently flat @ 1,762
Pre market BoJ Meeting notes no surprises. But one member expressed concern that “deflation might take hold” if Covid-19 spreads again and pushes down economic activity, so this “possibly warranted attention” in guiding monetary policy.
Coincident index Final Oct 89.4 vs 84.8 Sept (F/cast was 89.7)
Leading Economic Index Final Oct 94.3 vs 93.3 Sept (F/cast was 93.8)
Kospi opened higher and ticked up to 2,750 but then sold down to 2,720 on Trump’s tweet before working higher through the session. Currently +27pts (+1%) @ 2,760
Kosdaq opened higher and ticked up to 939 before reversing down to 920, then worked back to 936 but around 1pm sold down again, currently -1pt (-0.1%) @ 928
Market encouraged as LG Electronics surged around 30% in Wednesday afternoon trade after announcing a JV with automotive supplier Magna International to manufacture electric vehicle components.
Opened slightly higher, sold down with the rest of Asia and then rebounded to 14,220 before easing back to test support at Tuesday’s closing level before working better, rallied on the Consumer Confidence data. Currently +61pts (+0.4%) @ 14,239
Data mid morning
Consumer Confidence Nov 72.9 vs 71.1 Oct (F/cast was 70)
After market we get
Retail Sales and Industrial Production
CSI 300 opened higher and has worked higher through the morning to 5,028 before easing back into lunch. PM opened higher and trading sideways. Currently +49pts (+1%) @ 5,014
Opened @ 26,083 -36pts vs -86pts ADR’s. ECommerce names were mixed, SMCI saw further weakness, Kunlun Energy rallied on news of an asset sale. Market initially worked higher to 26,150 level and then trading sideways until around 11am when it rallied into lunch. PM opened flat but worked higher to 26,300 but unable to break out. Currently +147pts (+0.6%) @ 26,263
During the morning Weighted Voting Rights share rallied on news the Hang Seng Indexes were looking at overhauling the index structure. Financial were weak.
Expect market to open lower with concerns over Trumps tweet and the ongoing Brexit talks. Covid concerns remain too. Expect a number of investors to close their position with a number of European markets closed Thursday and Friday for Christmas including Germany. Some will only have half days on Thursday like Euronext, UK and France
EUROZONE No data
GERMANY Import Prices
UK Car Production
Opened flat but sold down after Trumps tweet regarding the stimulus packages which means it is likely to be delayed. Dow -110pts S&P -0.5% and NDX -0.4%
MBA 30 yr Mortgage Rate, Personal Income & Spending, PCE Price Index, Core PCE Price Index, House Price Index, New Home Sales, Michigan Consumer Confidence Data (Consumer Expectation, 5 year Inflation Expectations, Consumer Sentiment, Inflation Expectations, Current Conditions), EIA Oil & Gas Report, Baker Hughes Total Oil Rig Count.
Trump demands changes to $900bn US stimulus bill He called the deal a ‘disgrace’ and would ask Congress to ‘amend the bill’ and increase the direct payment with a higher amount of $2,000 per person, he also wants the corporate lunch tax break expanded.
In response Pelosi tweeted “Republicans repeatedly refused to say what amount the President wanted for direct checks. At last, the President has agreed to $2,000 — Democrats are ready to bring this to the Floor this week by unanimous consent. Let’s do it!”
It throws uncertainty into the market as is at odds with what Treasury Sec Mnuchin said earlier regarding the bill.
Key is that it is likely to delay payments and that is bad news.
It also highlights the damage that Trump can still so in his remaining days in office.
Asian markets turned lower on the news
Read also in the print edition Relief unpacked US stimulus bill helps sick, schools, airlines, renters and energy groups which goes through the main elements of the package agreed by Congress.
Colin Huang, Shanghai’s secretive internet king. Controller of $170bn Pinduoduo founded a web of ecommerce and gaming ventures in the city. Looks at the other ventures that Mt Huang has set up outside of Pinduoduo. It notes 'Pinduoduo previously told investors that Mr Huang founded, or was connected to, some of the companies, but in records registered with Chinese regulators they were owned by his associates.’
The FT article highlights both the secretive nature of Mr Huang and the sometimes misleading claims made by Pinduoduo about him. The article outlines that there is a maze of companies and some obvious nominee people holding large stakes. The article gives the impression that the company often makes misleading claims to portray Mr Huang in a more positive light. It mentions nothing illegal but does highlight the risks that come will such a complicated structure and the potential that such structures often have for fraud.
Trump issues series of pardons, including for two in Russia probe. Sweeping act of clemency to ex-aide, former lawmakers and Blackwater contractors. An interesting list and mainly because they are largely connected in come way to President Trump and his caompaingns. Worth a read.
Biden team raises doubts over Sino-EU deal Security adviser calls for talks with Brussels amid fears over forced labour. Interestingly the Biden team is not anti the deal but rather hoping to ensure that the EU remains tough on issues that are obviously going to be important to the US in its negotiations with China; namely forced labour.
As previously written both the EU and China have been pushing to try and get a deal signed by the end of the year. The deal has evidently hit a sticking point over adoption of international labour practices something that the EU is insisting on and China resisting. A Chinese press report put it along the lines
'Although China has offered the European Union multiple concessions in a landmark investment agreement, it has firmly refused to budge on a make-or-break issue: labour rights.’
The article notes that some in the EU are questioning the deal 'Reinhard Bütikofer, chair of the EU parliament’s delegation for relations with China, questioned on Tuesday whether the EU should “budge on forced labour” and whether the wider deal sent “the right signals”.’
It will be interesting to see in the next year if labour standards are being raised to a higher level how that will impact supply chains in China, and the associated costs.
Hopefully the move will improve labour standards globally although that will probably mean greater costs to consumers.
Global investors inject momentum into Hong Kong’s biotech craze. Big US funds throw weight behind record $21bn in Chinese healthcare listings.
Looks at how Hong Kong is looking to supplant the Nasdaq as the largest BioTech fundraising centre by 2025. The key is that Hong Kong now allows biotech groups with no revenue to go public. Key to the success has been the ability to secure ‘cornerstone investors’. Initially these were US funds most of which specialised in Healthcare but increasingly this has widened to include more general and more Asian funds.
Key is that the sector is likely to be a big driver for HK Exchange in the next few years and means that China’s healthcare sector will probably be seeing more international investment ahead which is +VE for Hong Kong.
Thermal coal prices rally on strong Asian demand and tight global supplies. Looks at the current surge in prices. It is partly because the trade dispute between China and Australia. There is also the reduction in Columbian supply because of earlier weak pricing meant investors would not finance new mines. Added to which Asia’s economic recovery has increased demand for electricity and finally a cold spell in China.
The dispute with Australia has forced China to buy from elsewhere but generally the quality of the coal is lower and that will cause issues down the line. The result though is rising prices and Australian coal is finding buyers in new markets; which could present China with a longer term issue.
Also mentioned is the pull back in iron ore prices. It notes the price fell 5.6% after the Dalian Commodity Exchange in China brought in trading limits for investors who are not formally a futures member. The aim being to try and curb speculation.
As I wrote this morning High iron ore prices may correct in the coming year as Chinese demand for the steelmaking ingredient is expected to ease, Talk that the China’s steel makers will cut output as part of government policy.
Short term though aggressive speculation through iron ore derivative trading could thwart hope to reduce prices, according to analysts. Press reports the China Iron and Steel Association (CISA) held talks last week with Australia’s Rio Tinto and BHP over how to control iron ore prices, prices have increased to near their highest levels since 2011. IMPORTANT is that if the government is suggesting a reduction in output it suggests less infrastructure projects -VE for Heavy Machinery companies like Sany, Zoomlion, Lonking etc.
Japan turns sour on Suga after prime minister flouts Covid curbs. Looks at how his approval rating has been falling. The key issues being his refusal to cancel the domestic travel campaign which many think has assisted the spread of the virus. He defended it on the grounds of keeping the economy going. Also undermining him was breaking the government rules to eat dinner with celebrities. The result is some are now questioning how long he will be in the job and whether he has the skills needed for the PM role.
It also raises the question of when the election will be held in Japan. The general election must be before October and his tenure as party leader expires in September but then there are also the Tokyo assembly elections in the summer.
An interesting read PM Suga is without doubt a hard worker but without having a good rapport with the population most of his good work is likely to go unnoticed. His 'behind the scenes operator’ image will not help him. He needs to be able to explain to the people what he is doing and why. Overall a slight -VE for Japan.
Cyberpunk shambles may yet prove a game-changer for Sony. Looks at the reasoning behind Sony’s decision to pull the game Cyberpunk, hoping to protect is brand image from the disappointment of a poor game. Makes the point that whilst the game is not made by Sony; the glitches that occur whilst playing it on Sony equipment mean the Sony could be blamed, having for years built the association between the game and the platform. It notes it comes as Sony is trying to move its customers to the PlayStation 5 a unit it is unable to produce enough of to keep up with demand. So it can ill afford gamer's fury with a poor game but in summary it notes
'There is a very fine line between disappointment at a delayed game and rage at a half-baked one. Sony has decided to project itself as the platform that will grudgingly opt for the former over the latter.Microsoft has (so far) decided not to pull Cyberpunk from its online store. That may grant Sony what it hopes is a moral superiority that gamers will ultimately reward. They are probably more fickle than that.’
Lululemon limbers up for overseas push. Using the fact that its market cap has grown this year as a beneficiary of the work from home ethnic. Its CEO sees no reason why in the years ahead its net revenue should not be 50% US/Canada and 50% rest of the world. For Asian investors its worth noting that in addition to Ecommerce its aiming at physical stores too; ‘It intends to open up to 35 stores in 2021 and Mr McDonald said the company was seeking to build on its presence in China, where it has 50, in Japan, South Korea and Australia.'
US employers warned not to insist on staff vaccinations. Looks at the different attitudes to vaccinations from management and staff.
I still think that despite the vaccines being available actually getting people to take them will be a issue. Historically people have been taking vaccines that have been developed over years. So there is a good amount of time related data. But people are also aware that some previously ‘rushed vaccines’ in the past have had side effects. So there are risks, even if statistically they are small. There will also be the matter of which vaccine you get. Some countries are giving people a choice, others are not. This will remain a thorny issue for a couple of years until the longer term impact has been well documented.
Read also Editorial Opacity dogs Chinese and Russian vaccines. Sharing data would boost confidence and global inoculation prospects
Exchanges under pressure after bout of outages in 2020. Scrutiny is intensifying as worries rise among regulators over the system’s resilience. With some saying the regulators should mandate more stringent practices.
But the question is whether the regulaters are any better placed to guide on how markets are going to develop. Too often the regulators are backward looking and seeking to prevent things happening again. What is required is active management constantly looking to improve their systems. But that costs money and most exchange users are already complaining about the costs. But with exchanges making ever more money from supplying data they should have the funds needed. The real question, as ever, is who is going to pay for it.
Reports of 60/40 portfolio demise are greatly exaggerated. Looks at the prospects for the traditional portfolio written by Erin Browne a managing director and portfolio manager at Pimco. The concern for many is on the return from the 40% in bonds. She looks at the long term history and also notes the benefits that having bonds in a portfolio gives; traditionally 'diversification and a moderation of portfolio volatility — could be especially beneficial in the years ahead.’
So whilst the relationship is under stress the benefits, in the expected volatility ahead, will still be useful.
Key though is targeting the opportunities that meet specific needs; mentions 'there are opportunities in high-quality assets such as mortgage-backed securities from US government agencies that are receiving support from the Federal Reserve. Other attractive areas are double A and triple A rated investment grade corporate bonds and emerging market debt that is currency hedged.’
For her the key is 'One answer for 60/40 portfolio investors is to divide fixed income investments into two parts — hedging and yield assets. By doing so, investors can create a well-diversified fixed income portfolio that can still provide tremendous benefit to multi-asset portfolios.’
An interesting read.
The Big Read Rating ESG. Chemicals group Solvay has been criticised over discharge from a plant near a beach in Tuscany. The case highlights questions from investors about how the environmental records of companies are evaluated.
Opinion The fading light of liberal democracy
Pluto-populists’ strategy of using identity issues to convince voters to act against their interests is working. An interesting read.
In summary 'None of today’s dominant systems is working well. Capitalism is innovative, but creates huge social, political and environmental challenges. Liberal democracy is corroded, even at its core. But the authoritarian politics that challenge it are vastly worse. Unaccountable rule by gangsters or brutal bureaucrats is deeply depressing, even if the latter are much less incompetent. Those of us who continue to believe in freedom and democracy hope Mr Trump was the warning we all needed. But I doubt it. There is none so blind as rich egotists who will not see.'