July 26 FT & Asia Update China, Education policy, Ministerial talks and Growth data this week


This and previous notes can be found at Substack ( Asian Market Sense )
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Asian markets mixed but the weakness in HK/China impacting other markets. Investors watching US/Sino meeting today and trying to extrapolate the implications. Japan re-opened higher after the 4 day weekend and is holding onto those

Australia
Market opened higher; +0.3% to a new all time high but has trended lower through the session and is currently trading around flat.  GPT Group weak having withdrawn its 2021 guidance due to continued covid lockdowns. Oil names weak.  Currently flat @ 7,394
Japan
Nikkei opened higher @ 27,990 after the four day weekend it has tested the 28,000 level but failed to hold above and eased back to 27,875 before a slight bounce and then traded sideways into lunch.
PM opened lower and trading sideways. Currently +313pts (+1.1%)@ 27,860
Topix Opened higher, tested to 1,938 but the eased back and traded around 1,930 into lunch. PM drifting slightly lower Currently +23pts (+1.2%) @ 1,927
S Korea 
KDCA announced 1,318 new covid cases the drop atributed to less testing over the weekend but noted more cases arising outside Seoul.
Kospi opened higher but initially sold down to 3,250 and then trended lower currently -17pts (-0.5%) @ 3,237
Kosdaq opened higher, tested flat in early trades bounced to 1,058 and traded around there for a hour then eased lower to 1,056 for around an hour. Then sold down to 1,054 and now trended lower. Currently -2pts (-0.2%) @ 1,053
Taiwan 
Taiex opened slightly lower, ticked up to 17,600 in the first 20 minutes but then sold down to 17,450 over the next 90 minutes and then traded sideways. Finance and Insurance leading the declines. Tech also weak with TSMC weak.
China 
CSI 300 opened lower and sold down through the morning to 4,926 just before lunch but ticked up into lunch. Broadbased weakness but Consumer names being hit hard.
HK 
Pre market opened @ 26,826 -496 vs -123pts ADR’s and trended lower through the morning to -817pts (-3%) @ 26,486 Internet/E-commerce and Macau names hit hard as China cracks down on the on-line education sector and ‘illegal activities’ of internet; Meituan -7.7%. Tencent -7.3% on having to give up music monopoly and pay a fine.
Europe
Expect markets to open lower  following the handover from Asia with earnings in focus but with covid still overhanging the markets.
Data ahead GERMANY Ifo Business Climate, Current Conditions and Expectations
US Futures
Currently Dow -157pts S&P and NDX -VE ahead of a big earnings week for tech companies.
Ahead New Home Sales, Dallas Fed Manufacturing Index.

FT Front Page 

Taliban threat
Afghanistan orders curfew
Also inside Night curfew imposed as Taliban forces make gains in Afghanistan  The taliban is looking to take control and change the government.  It will be interest to see how China works with both the existing government and the taliban.
UK drive to squeeze out Chinese from nuclear power programme
• Role of Beijing’s CGN at risk • Fraying ties force London rethink • New partner sought.
Further deterioration in relations having a direct impact although I would image that finding an alternative partner will be difficult.

Vision Fund’s bet on Didi marked down by $4bn as Beijing pressure takes toll
With the  sell off in a  number of  Chinese tech stocks today and the general  change in tone from Beijing is likely to mean the fund will be nursing further losses.  Investors will now be re-assessing the political risks associated with investing in China names.

INSIDE
Fed divided over right time to scale back bond buying
Rising inflation and recovery prompt US central bank debate on stimulus.
An interesting read that sets out the views of the Doves, Hawks and the Centrists. Obviously the meeting this week will be focused on the inflation data and the debate over tapering. Policy is likey to remain the same; one of being data dependent and accommodative.

US warns China’s sanctions will fail to give Beijing leverage in talks
Relations appear extremely frosty ahead of the talks and so it will be interesting to see the statements that come after the meeting today. Obviously the pre meeting statements, from both sides, are largely for domestic consumption. The key will be finding a compromise that is acceptable to both sides. But from the recent moves it would appear that China sees no reason to change its current course and neither does the US.
Many believe that whilst China is portaying its confidence about the situation the reality is less rosy. Concerns about the strength of its recovery, debt defaults and most recently the significant flooding are rising. Beijing seems to be under a lot of pressure both internally and externally. Deteriorating relations with the US and other countries will not be helping.
For investors the risks of investing in China seem to be increasing.

Companies & Markets
Market Questions. Manufacturing data
Recovery fears focus on Chinese output  
China’s PMI, due out on Saturday,  will be closely watch for signs of slowing.  Ahead of that we get Industrial Profits data tomorrow.
There are concerns about rising costs, particularly with regard to resources. The question is really about what China can do if the recovery is faultering. Beijing has been keeping a tight rein on debts and so it is unlikely to ease back there.
Also this week there is a politburo meeting to be chair by President Xi, which could indicate whether the recent RRR was a sign of things to come and might also some more light in the clamp down in tech.
Other questions raised in the article.
How quickly is inflation rising in Europe?
Is inflation or infection the bigger risk for the Fed?

For Interest

Trading apps reduce markets to a game  By Rana Foroohar
Suggests that trading apps are doing to stock markets what social networks have done to society. Worth a read key is whether traders using apps are being manipulated?

FT BIG READ. CLIMATE CHANGE
What growing avocados in Sicily means for the future of food
Changing global temperatures are shifting the seasons and the range of crops that farmers can grow, raising concerns over food security. But it also allows them to cultivate produce once beyond their reach.