Nov 2 FT Thoughts Huawei Chips, Eurozone hit again, N Korea, Consoles and lunchtime updates

04 Nov

Nov 2 FT Thoughts Huawei Chips, Eurozone hit again, N Korea, Consoles and lunchtime updates

MARKET’s as at 1pm
I expected the Asian markets to see a bigger reaction to the UK announcing a new lockdown and generally rising covid cases in Europe and US which I think will significantly impact the global recovery and hurt the Asian exporters. But investors instead have focused on the buying opportunity from Friday’s sell off.

JAPAN opened higher with good PMI number and worked higher through the morning to 23,370, recovering most of Friday’s losses before easing back to 23,300 at lunchtime. Currently trading sideways around the lunchtime level; +1.4% @ 23,302
Manufacturing PMI Oct 48.7 vs 47.7 vs Sept (F/cast was 48.0)
S KOREA Markets opened higher and worked higher Kospi hit 2,298 mid morning but failed to break above and eased back to trade around the 2,290 level but after 1pm working higher again Currently +1.2% @ 2,296. Samsung and Hynix weak, but Pharma, Auto and Steel +VE
Kosdaq followed a similar trading patten but dipped initially to test Friday’s closing level. Currently +1.3% @ 802.83
Manufacturing PMI Oct 51.2 vs 49.8 Sept (F/cast was 49)
TAIWAN opened higher and rallied to 12,594 but then reversed and traded into the red, to around 12,500 and traded sideways with a low of 12,480. Currently -0.1% @ 12,530
Manufacturing PMI Oct 55.1 vs 55.2 Sept (F/cast was 52)
CHINA opened higher after good weekend PMI data, news that China was introducing new rules to improve international access to its markets and this mornings PMI number, which was strong too. Market then traded sideways in choppy trading. Rallied to 4,730 before selling down test Friday’s close. Currently +0.3% @ 4,712
Shanghai Comp similar open but traded down into the red and failed to break back above Currently -0.05% 3,223
Shenzhen Comp traded in a similar pattern to the CSI 300, currently +1% @ 13,369
ChiNext Index Similar to the CSI 300 currently +1.5% @ 2,696
Caixin Manufacturing PMI Oct 53.6 vs 53.0 Sept (F/cast was 52.9)
HONG KONG Opened higher with E Commerce firmand traded sideways around the 23,400 level, currently +0.8% @ 24,299. Chinese Financials saw a rebound post results, Brokers and Auto’s +VE
After market Retail Sales due.
EUROPE Well I was wrong on how Asian would trade this morning but I think Europe is likely to open flat as investors react to the UK going into lockdown again and a number of other Eurozone countries facing rising covid stresses.
Data due
EUROZONE Manufacturing PMI
GERMANY Manufacturing PMI
FRANCE Manufacturing PMI, New Car Registrations
UK Manufacturing PMI
US Futures saw significant volatility when they opened, going down 200pts in early trades. Currently flat but I would expect a weak open as covid cases continue to rise and ahead of the US election tomorrow.
Data due Manufacturing PMI. ISM Manufacturing Data (New Orders, Prices, Employment, PMI) Construction Spending.
Earnings Clorox, PayPal, Mondelez International, Estee Lauder, Marathon Petroleum, Wingstop, Waste Management, Skyworks Solutions, Transocean, Rambus, Trivago, Loews Insurance, Ingersoll Rand, Rambus, FirstEnergy, AMC Network, Assurant

FT Print
Lots on the US election ahead of tomorrows vote. Most think it will be a few days before we know the real result

Huawei plans Shanghai plant to beat US sanctions and cut chip dependency. Key is that would not use US technology and enable it to secure supplies for its core telecom infrastructure business despite US sanctions. But only of the low end 45nm chips which is what the rest of the industry was making 15 years ago. It would aim to try and make 28nm by end of 2021 and 20 nm chips by end 2022.
Really it highlights what an uphill struggle this will be. Its not just a matter of buying machines but developing the whole range of skills needed. To data China has been making chips but never the leading edge ones.
But such first steps are important in order to start. The other key thing to remember is that the industry leaders will not be waiting for China to catch up, they are continuing to push forward.

Eurozone growth outlook darkens after lockdowns fuel downgrades. The recovery which some were saying was already losing momentum will take a further knock back from the recent surge in new covid cases. The article notes Eurozone is now expected to shrink by 2.3% in Q4. The three months to Sept saw the bloc exit the virus induced recession but the economy is still well below pre covid levels. Sunday saw the UK announce another lock down that would start Thursday and last for four weeks. Other European countries are facing partial lock downs too.
It also means a lot of the data received over the past month becomes largely irrelevant as the new lock downs undermined the progress that had been made. It will also raise the threat of more business failures and bankruptcies which is likely to mean that the threat to the banks rises and their potential to resume dividends will be further questioned.

Secrets behind North Korea’s nuclear arsenal Looks at the remarkable advances they are making and wonders how? Some may be from outside purchases and some are from home design. Raising the question of whether it is home schooled ability or from spying/hacking. One of the big unknowns is whether the technology actually really works. But almost regardless of that the threat is very clear and worrying for S Korea, Japan and even the US.

Hype reaches next level for console launches. New releases of Sony’s PlayStation and Microsoft’s Xbox come at a time of rapid change in the games industry. The forthcoming launches will be different to the previous launch. The sector is still benefiting from the fact that covid has restricted or closed many other sporting or entertainment opportunities.
For Sony it is a big opportunity to push its games, music and movie businesses. But the key seems to not be the actual sale of the hardware but the enticing users to stay playing or using for longer; content is key. Which is why it is estimated that Sony will lose US$170 per PS5 it sells. For Microsoft’s Xbox it is a similar situation. With covid the logistics of getting the consoles too customers is now more difficult. It also notes that covid has impacted on game production; with Microsoft having to push back the release of its Halo Infinite to next year; some thing that is hurting both in house and third party game design teams. Interestingly Sony is using airfreight rather than sea for shipments to the US to ensure they are available, which will be costly due to its size and the lack of ordinary commercial flights. The fact that it is doing so underlines the importance of getting the product to the consumer. Sony, Nintendo and Square Enix are the key to names in Japan for the sector.

Pandemic makes audits harder, warns PwC. Lockdowns will increase uncertainty in judgment calls, says firm’s chairman. Whilst I can see that the on site counting of widgets more difficult the reality of modern fraud, from the recent high profile cases is much more about verifying payment that anything else. The fact is that the auditors role has changed from bean counter to sleuth. They need to asking different questions and pursuing different avenues. With regard to the matter of making the decision over whether a company can continue to trade as a going concern for the next 12 months is no doubt much more difficult in the covid era. But should auditors be asked to make such a decision? When they signed off on the books last December no-one had heard of covid 19. It may well be that the industry needs a significant overhaul to ensure that it is fit for purpose.

Blue chips buoyant US third-quarter earnings decline far less than analysts had feared. Looks the Q3 earnings which have been generally better than expected. Notes that sales were running above expectations. But the market reaction has been muted and overshadowed by the increasing number of covid cases, stimulus package and the election. It notes that the outlook has also improved judging from the forecasts by some companies. Short term two key factors I think will drive the market; whether the US can control the current surge of covid cases without having to revert to mass lockdowns and the stimulus package from whomever win the election; which could depend on control of the Senate.

For interest
FT BIG READ. RETAIL Serving the post-Covid consumer Written off by some as corporate dinosaurs, consumer goods multinationals have been boosted by pandemic-related changes in lifestyle. But will they continue to thrive when the crisis is finally over?
An interesting read and the sector is seeing the speed of change accelerating.

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