July 13 FT thoughts & Asia update; China Trade Data stronger than expected.

This and previous notes can be found at Substack ( Asian Market Sense )
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Asia at Midday HK time. The region saw a strong open but has eased back from initial highs. Chinese Trade data was much stronger than expected which makes the RRR cut more surprising but credit default by another Chinese developer worries the market. E commerce saw a rebound as Tencent gets approval for a acquisition but there are concerns ahead of inflation data Europe and earnigns in the US.

Market opened strongly and tested to 7,380 in early trades but then trended lower through the day with sentiment hurt by the poor Business Confidence data and continued worries over covid. Tech and Industrials leading.  Materials firm. Laggards were Financials and Property.
Business Confidence Jun 11 vs 20 May (F/cast was 19)
Expected New Home Sales Jun (May was 15.2% (F/cast was 20))
Nikkei opened higher and worked higher in the first hour to 28,852 before easing back to 28,770 and then ticking hihger and trading sideways into lunch +223pts (+0.8%) @ 28,792.
Topix followed a similar pattern, rose to 1,973 eased back to 1,966 but then worked better to 1,970 before easing back into lunch at +15pts (+0.8%) 1,969
S Korea 
Tech seeing interest.
Kospi opened higher and worked to 3,271 in the first 35 mins. Then eased back to trade around 3,265 for about an hour before ticking higher to trade around 3,270 level. Currently +24pts (+0.7%) @ 3,269
Kosdaq Initially rallied to 1,039 then legged up to 1,044 before easing back to 1,040 around 10:30am. Then worked higher but seeing resistance approaching 1,045.
KDCA reported 1,150 new covid cases remaining over 1,000 for a week.
Taiex opened higher at 17,931 and rallied to 17,984 (TSMC broke above NT$600) but then eased back with support at 17,950 for about 30 mins before testing 18,000 but that brought out sellers market sold down to 17,920 level before a bounce to 17,950 but then sold down again. Currently +92pts (+0.5%) @ 17,908
CSI 300 opened lower but rallied to 5,150 then trended lower in very choppy trading to flat at lunchtime. Better than expected trade data out around 11am having little impact as Customs briefing talks about a weeker 2H. News of more defaults in the Property sector -VE for sentiment.
Data out around 11am
Balance of Trade Jun $ vs 45.53b May (F/cast was 40b)
Exports Jun YoY vs 27.9% May (F/cast was 24%)
Imports Jun YoY vs 51.1% May (F/cast was 32%)
Significant exports of covid vaccines and to ‘Belt and Road’ countries
Pre market opened @ 27,694 +179pts vs 106pts ADR’s
After some initial weakness rallied strongly to 27,900 in the first 30 minutes and then 28k in the next 30 minutes. Then traded around the 28k level. E commerce names seeing renewed interest; as Tencent got approval for an acquisition of search engine SOGOU. Drugmakers +VE too.
Expect a cautious open ahead of German & French Inflation data along with the UK BoE Financial Stability Report & FPC Meeting.
US Futures 
Opened flat Dow +13pts, S&P flat with NDX +0.05% ahead of bank earnings. Have eased back during Asian hours currently Dow -10pts, S&P -0.06% and NDX flat.
Biden team preparing a digital trade deal in Asia to counter China’s advantage.

FT Front Page

Italy toasts its Euro winners  +VE for Italian sentiment

ECB faces split over how to apply inflation strategy, Lagarde warns
• Rate-setters meet next week • Policy tightening to be resisted • Stimulus decision looms.
A key meeting for the ECB as Lagarde seeks to put her stamp on the ECB’s policy following a review of policy. In her view now is not the time to start talking about tightening.
Israel is first country to offer Pfizer’s ‘booster’ jab as Delta infections soar
Takes the lead in offering the booster to those with pre existing medical conditions. The rest of the world will be watching to see the impact as the Delta variant raises cases world wide.

Taiwan technology groups combine to secure vaccines
TSMC and Foxconn agree a deal with Fosun for 10m doses of BioNTech’s Covid-19 vaccine. Positive for sentiment and helps the government after the dispute over the securing of vaccines from the Chinese supplier rather than direct from BioTech. Again underlining the need for Taiwan’s sovereignty to be more internationally recognised. But the most important point being that more people get vaccinated.

North Korea views US aid as ‘sinister’ attempt to meddle
Just goes to show how little trust or how much fear there is within the regime in North Korea. As ever it is the people of North Korea that suffer and there is little that we can do about it.

Companies & Markets

Retreat from liquidity in the rush for yield is a risky strategy By  John Plender
A good read about the hunt for yield which is resulting in institutions holding increasingly illiquid assets.
He concludes ‘Increasingly the function of the primary equity market is to fund operating losses until such companies achieve profitability (or not). And the structure of capital markets generally is dictated increasingly by ultra-loose monetary policy. The message, once again, is that the Gadarene search for yield inevitably leads to phenomenal mispricing of risk. The risk premium in private markets is dwindling and in some areas may even be illusory.’
The key driver continues to be the central banks ultra loose monetary policy.
Worth a read.

Electric car profits tipped to beat petrol
EU rules will see margins for traditional vehicles fall short, says VW executive.
Looks at the new emissions rules due to come into force in 2025 that are likely to mean that petrol based cars are no longer profitable. That is likely to be positive for electric car makers but it is likely to mean significantly fewer jobs in the sector.

Europcar warns chip shortage will keep rental prices high
Key point being that rental car purchasers are having a tough time buying vehicles as manufacturers push, better margined retail sales.

Emissions from listed groups will breach Paris targets in six years, MSCI tracker suggests
An interesting read. It appears a lot of companies are not yet making full disclosure of their greenhouse gas emissions. It will be interesting to see how shareholders react and whether they are able to put more pressure on boards to publish the data and whether that impacts investor’s decision or whether to remain invested?

ETF fees blown higher as historical trend reverses
Price war caused a long period of cuts for charges but that is ending in a number of regions.
It seems that the fees on ETF’s have hit their lows and that even with increased volumes they cannot go lower and in some cases are actually rising. Passive fund fees continues to see pressure but more actively managed funds are looking to increase fees.

Natural resources prices dented by Delta variant and China growth fears
The rise in new covid cases along with China’s growth are key drivers for commodity prices at the moment. The two are closely linked in my view. The talk is now that China’s growth is slowing after the initial gains of being the first out of the covid lockdown experience. But it is also highly reliant still on its export market. But also I think because domestic consumption in China is lagging because the recovery so far for China and globally has had a narrow focus and not been broadbased.

Fall in bond yields is no longer good news for stocks  by Mohamed El-Erian
Suggests 3 reasons
1. Slowing growth due to weakness in China and the US and concerns over the covid delta strain.
2. Dovish stance from the ECB
3. Technicals ‘ The more yields fall in such a counter-intuitive mode, the greater the pressure on those brave souls that were still betting bond prices would drop, or who were underweighting their benchmark indices.’
He also mentions it could have been ‘belated buying from pension funds that have given up on waiting for better entry points to buy assets to match liabilities. Indeed, the abrupt nature of last week’s market moves were consistent with “capitulation trades” — as in, “I don’t care about the levels, just get it done”.’
So what next; he suggests
TINA, or there is no alternative to stocks with yields so very low;
BTD, buy the dip as the liquidity wave continues; and
FOMO, fear of missing out on yet another move up in stocks.
But also there is a risk of ‘ “de-grossing” — that is, simultaneous reductions in risk-taking positions led by those who have bet on an improving economy with the “reflation trade”.’
Lastly and most worryingly ‘is that the economy and the financial system may have already experienced too much of a good thing.’
He concludes ‘With the Fed already behind on inflation and with supply side problems proving more persistent, there is growing concern that the more the central bank waits to taper its $120bn of monthly bond purchases the more likely it will be forced into slamming the policy brakes on at some point. In the meantime, speculative excesses would have built up further, more resources would have been misallocated across the economy, and more unsustainable debt would have been incurred.
What is clear to me is that we are moving irresistibly closer to a critical question for the economy and markets, and not just in the US: is there still the possibility of an orderly exit from what has been a remarkably long period of uberloose monetary policies?’

A very bearish view. With us entering earnings season again and with high expectations the potential for disappointment I think are high. Data out this morning from China suggests that its recovery is still on track, although that makes last week’s RRR cut all the more surprising.