July 20 FT Recovery Fund? UK Extradition, Books in HK, Levi's doubt the Fed

22 Jul

July 20 FT  Recovery Fund? UK Extradition, Books in HK, Levi's doubt the Fed

MARKETS as at 11:45am HK time
Market opened slightly higher but has trended lower. Pre market data was not as good as had been hoped for and combined with increased covid cases sentiment remains weak.
Data out
Balance of Trade Jun Y-268.8b vs -838.2b (F/cast was -40b).
Exports Jun -26.2% YoY vs -28.3% May (Consensus was -24.9%)
Imports Jun -14.4% YoY vs -26.2% May (Consensus was -16.8%)
BoJ Meeting notes
In a quarterly outlook report, the central bank said that Japan's economy is likely to improve gradually from the second half of this year, with the pace is expected to be only moderate while the impact of COVID-19 remains worldwide. Policymakers noted that the outlook for economic activity and prices are extremely unclear, depending on the consequences of the virus and the magnitude of their impacts on domestic and overseas economies. Based on the assumption that a second wave of infections will not occur, the GDP for the 2020 fiscal year is expected to shrink between 4.5% to 5.7%, compared with an earlier forecast of -4.7%. Meantime, the CPI is projected to drop between 0.4% to 0.6%, compared with the previous estimate of -0.5%.
I imagine that with the recent rise in covid cases the assumptions that a second wave doesn’t occur has been dismissed by the market.
S KOREA Markets opened higher but trended lower for the first hour before staging a bounce back. Although the Kosdaq looks to be running out of momentum before reaching Friday’s closing level.
TAIWAN Opened higher but initially sold down in the first 15 minutes but now working its way back and traded just below flat.
CHINA Opened Higher with Loan Rate Data unchanged as expected after some positive data in June. Markets initially sold down in the first hour to just below Friday’s close before seeing a strong rally to the morning high. Closed for lunch at +89pts 4,633
HONG KONG Pre market opened -70pts @ 25,020 vs +20pts ADR’s at 25,109 with light T/O of HK$1.7b but initially spiked 150pts before selling down 400pts in the first 20 mins. Market since then has worked higher in choppy trading as just broken back into the positive. There were a number of profit warnings over the weekend along with increased covid cases and a reimposition of social distancing requirements; all -VE for sentiment. But despite the low pre market volume the sharp rise in the HSI suggests that Team China is back to support the market.
EUROPE I would expect the markets to open lower, following Asia and with no deal on the European Recovery Fund having been announced.
US Dow Futures opened flat +45pts but have edged slightly higher but I would still at this stage expect a flat open. Caution over the covid impact on the economy and the fact that earnings season is underway.

Summit toils to find unity. EU battles to overcome summit deadlock.
Basically talks in Europe over the recovery fund are not gong well. Frugal nations are trying to limit the amount that the biggest recipients will receive; key is the level of non-repayable grants the recovery fund would be allowed to make.

UK signals suspension of Hong Kong extradition treaty. An announcement is expected later today. It notes that the UK foreign secretary criticised Beijing’s “egregious human rights abuses” against its Uighur minority. A group of UK MP’s wrote to Mr Raab and stated that after the imposition of the new security law “We are all going to have to ask ourselves if we recognise the Chinese Communist party’s definitions of secession, subversion, terrorism and collusion, and share the interpretation of mainland judges,”. That will take time to determine because those terms are not really defined the the text of the new law and so we will have to wait to see cases. It is made more difficult by the fact that in China there is no law of precedence! At this stage it seems the UK is unlikely to announce sanctions on China although I would imaging there pressure is mounting for the government to do so. IF they do as many others have said; a co-ordinated and joint approach by many countries would have the bet leverage.

HK publishers self-censor in wake of security law Beacon of free press chilled by Beijing’s move to end pro-democracy movement. An obvious impact of the new security law being to remove books that upset China. A clear sign of censorship. Public Libraries along with publishers and book sellers removing books that could cause embarrassment to China because they give a version of events that does note fit with the way or spin that China’s propaganda machinery has used. It notes that the New York Times has moved its digital publishing operations to S Korea because of the new law.
There are even calls from pro Beijing supporters to report books that are about Hong Kong Independence or ‘products that endanger national security’. The article notes that Beijing backed book shops now dominate in Hong Kong and reminds us that before the new security law five Hong Kong citizens, associated with Causeway Bay Books ‘disappeared’ from Hong Kong. The store was popular for selling books the gossiped about the leaders in China and was popular with mainland tourists.
The article says that Hong Kong has now lost its reputation ‘as the world’s freest Chinese-language publishing community.’
IT does note that Albert Wan a co founder of Bleak House Books, and independent has said he hasn’t removed any books from his shelves. So there is a name to watch out for in the press in the days to come.

Levi’s chief warns retail closures are ‘tip of iceberg’ Fashion brand expects more failures. Bergh seeks to capitalise on turmoil. Worth a read as Levi’s is hoping that the current situation will enable it to capitalise on smaller brands being unable to keep going and so give it the opportunity to grow. It going trying maintain its brand level. Work from home has helped but jeans have been less popular than sweatpants.
My initial reaction is that this means that the stimulus the US government and Fed has put in place is not going to work and that we are going too see a lot more failures. That would be inline with the action from the banks last week in taking large provisions. The impact for Asia must be the a lot of manufacturers are also going to be under pressure as the companies they supply go bust leaving unpaid debts in their wake. It is likely to mean weakness int he apparel makers and I would expect the shoe makers too.

German plan for supply chain law stirs debate over human rights. A proposal for the government to bring in legislation on the entire length of the supply chain, not just that within Germany. It is being opposed by companies and business associations on the basis that it puts too much pressure on small companies. But the fact that its being thought about and makes the press highlights that it is likely to become more of an issue. If Germany and other countries were to introduce such a law that is likely to mean higher costs but also better working standards and wages froths that probably need them most.

For Interest
Opinion Brave Hong Kongers deserve better from investors.
Suggests that businesses have a choice and that there is room for civic minded activism amongst shareholders. It notes the success of such policy in the anti-apartheid era and suggests that 'Hong Kong is apartheid with Chinese characteristics’.
It warns that in moving into China has dangers and quotes La Rochefoucauld '“Hypocrisy is the homage that vice pays to virtue.” Companies operating in China should not count on business as usual when Hong Kong is paying the price in freedom.'

Opinion The EU and US can still beat Chinese tech. Looks at the need for co-operation and alliances between the EU, US and other like minded nations in order to be able to compete and rival China. Notes that this is something that Joe Biden has mentioned to do.

Opinion A flexible inflation target is not a panacea. Looks at what central banks are started to debate what happens if inflation returns and actually is about the target. Takes time to note that inflation and trying to forecast it is remarkably difficult. Worth a read.

Vanguard lures 200,000 clients with China venture.
Looks at the success of Vanguards tie up with Ant Financial in its first 100 days. The success seems tone based on investors exiting money markets and rotating into equity offerings. Vanguard says it will be adding more material the platform so worth tracking the next 100 days too.

BNP Paribas fund arm braced for the ‘mother of all recessions’. Someone clearly not in the V shaped recovery camp. It notes a number of other surveys also doubt the V shaped recovery. Also that current market action driven by liquidity is not based on fundamentals or valuation and is overly bullish. The big swing factor as every is a vaccine; with that everything changes. Which suggests that markets are factoring a vaccine being found in the short term. The longer it takes the less of a V recovery we should expect.

Shiny new ETFs prove resilient so far Analysts disagree over whether sector is due for a setback as volatility increases, writes Steve Johnson. Looks at the number of new offerings and the fact that new offering are slowing. Launching over the last couple of months has been good because of the market moves. The real question is whether we are in a recovery mode and things continue to get batter, in which case the market should remain welcoming of new launches. Or things get worse, markets all and people withered money. Again only time will tell but I remain firmly in the cautious camp until the vaccine is found.

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