Aug 6 FT GOLD, TAIWAN/US, PBoC Policy, Data is the new Oil and more

10 Aug

Aug 6 FT GOLD, TAIWAN/US, PBoC Policy, Data is the new Oil and more

MARKETs as at 2:30pm HK time
opened lower and initially rallied back into the green but then sold back down to the day low and then traded sideways lower into the close -0.4%
S KOREA opened higher Kosdaq basically traded sideways lower to currently +0.6% and the Kospi had opened higher eased back to the opening level before working slightly higher in the afternoon currently +1.1%.
TAIWAN opened higher and rallied before selling back down to the 12,850 level and trading sideways currently +0.9%
CHINA opened higher but sold down in the morning to day low at 11am bounced into lunch. PM has seen the market work higher currently -0.5%
HONG KONG Opened at the day high but then sold down sharply through the morning to the day low around 11am @ 24,640 level with a small bounce before lunch. PM das seen the market working higher Currently -1% @ 24,850 level
EUROPE Looks to open lower with earnings in focus. BoE keeps rates unchanged. Investors still watching for an agreement on the next round of US stimulus.
US Futures currently indicating +90pts with the S&P and NDX also positive. Key data today Challenger Job Cuts, Initial Claims (and 4 week average), EIA Natural Gas Report,

EARNINGS include Bristol-Myers Squibb, News Corp, ViacomCBS, Cardinal Health, Mylan,Mylan, Booking Holdings, Uber Technologies, First Solar, Zillow, Cushman and Wakefield, Datadog, Dropbox, Murphy Oil, Hilton Worldwide, Papa John’s, Zoetis, Sealed Air, Ball Corp, AXA, ING, Adidas, Siemens, Nintendo, Toyota

Gold hoard of $80bn raises ETF above central banks in bullion owner rankings. 
Notes how the SPDR Gold Shares ETF that owned physical bullion has now amassed 1,258 tonnes of Gold and continues to buy. That puts it ahead of some countries in terms of gold holdings.
It also reflects that some investors are worried about the possibility of inflation as a result of the amount of stimulus that has been injected by Governments and Central banks to combat the covid pandemic.

Senior US politician’s Taiwan visit annoys China. The US health secretary will lead a delegation to Taiwan in a move seen as lending more support to Taiwan as Washington seems to be deepening its ties with Taiwan. China’s response was to say that US efforts to engage more closely with Taipei were “doomed to fail”. “China firmly opposes the official communication between the US and Taiwan,”.
I think the US is becoming more aware of the importance of Taiwan not least because of its dominance in Tech especially chips as highlighted last last week when Intel announced that is was a year behind in its next stage development. I think the threat of China seeking to take Taiwan by force are slowly being taken more seriously and I think more Countries should be making it clear that such action is unacceptable and that Taiwan is an independent country.

US rivalry explains strength of China’s central bank hawks. Looks at the current policies from the PBoC. In June China rejecting using some of the tools used by western central banks like 'negative interest rates, monetisation of the budget deficit, or a big expansion of its balance sheet. Chinese policymakers eschew what Beijing calls “flood irrigation” stimulus.’
Whilst pump priming may seen appealing China is cautious because past experience has often seen unintended consequences and so it remains restrictive. Also the worsening US/China relations and the fact that the renminbi is not convertible leaves China open to financial sanctions and so it has a big incentive to maintain economic buffers in a similar fashion to those seen in Russia. China also worries about capital flight and the article notes that 'Net expenditure on foreign tourism during that quarter was only 25 per cent lower than the quarterly average in 2019, which seems odd for a period characterised by almost total lockdown.
There has long been a suspicion “tourism” has been used as a cloak to hide unrecorded capital outflows, and the case for thinking so is as strong as ever.’
In light of all the above China’s tight monetary policy can be understood as bolstering its defences, keeping interest rates high give companies and citizens good reason to keep faith with the currency. ALSO it notes that China may be hoping that the Fed’s policy could debase the USD and that could be bad for the US economy but good for Beijing.
An interesting read.

Opinion China breaks away on drilling for the ‘new oil’. Compares data with oil and notes that China seems to have realised the value of it some time ago. It goes on to suggest that the closure of Chinas Houston consulate was because it was gathering vast amounts of raw US data to give its companies an advantage; particularly in energy and agriculture.
It notes that whilst some US companies realise the importance of data many still don’t. Also that some of the data being produced is not yet in a usable form but maybe one day. One key difference between data and oil is that data can be stored cheaply and at some later date the value extracted.
An interesting read and it is important to realise how crucial data is and hence potentially valuable. It is notable that in broking that often brokers that for granted the information they process and assume that ‘everyone knows’ when often that is not the case.

Banking industry braced for further pain. Lenders prepare for worst amid fears that trading boost will prove temporary and after surge in bad loan provisions. Looks at the key points from the Banks earnings:
Bad loan provisions have increased across the board; which suggest more downside ahead which is rather at odds with how markets are positioned in my view. Always worth remembering that these are provisions that can be written back if not used.
Trading was a bright spot for a lot of banks in the last quarter but few are expecting those volumes to continue into the second half now that most investor have repositioned portfolio’s. But I would presume that once a vaccine/cure is found there will be another surge in trading as investors re-adjust their portfolio’s to reflect that.
Bank capital grows The top US banks grew their capital marginally despite taking provisions in part by suspending share buybacks.
Cost Cutting Remains a key area for the banks to make savings. Travel curbs and home working have had a impact. Potential for branch closures and other cost cutting efforts remain a key area for management.
It will be interesting to see if the shape of banks changes significantly as a result of the covid pandemic.

Mizuho chief predicts wave of Covid M&A and succession shake-ups. He is saying that Japanese companies should not wait for a return to pre covid conditions but should be looking to adapt the the current situation which is likely to last he thinks for a couple of years.
The move from paper to digital in Japan is a key area and whilst many companies have resisted the move in the past they will now be forced to comply. He expects companies to work out survival plans and secure short term liquidity, review property and business sales and even M&A. Particularly in focus will be the 40,000 SME’s whose owner is about 60 years old and has no clear successor.

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