July 30 FT & Asia update Biden's EO effective Monday. HK Security, China VW, Crypto and Confidence.


This and previous notes can be found at Substack ( Asian Market Sense )
Check out ERI-C.com  for your research needs

Australia
Market opened higher and tested towards 7,440 in early trades but then reversed down to the day low of 7,403 after PPI was much weaker than expected and Private Sector Credit higher.  It then traded sideways for a while before recovering and trading around flat. Weakness in CSL, Fortescue Metals, and Afterpay.  But NAB strong initially announced a share buyback; but has eased.  It  follows ANZ.  Origin Energy  weak after poor earnings; higher costs and lower demand.  
Data
PPI Q2 +0.7% QoQ vs +0.4% Q1 (F/cast was +2.1%)
PPI Q2 +2.2% YoY vs +0.2% Q1 (F/cast was +3.5%)
Private Sector Credit Jun +0.9% MoM vs +0.5% May revised (F/cast was +0.2%)
Private Sector Credit Jun +3.1% YoY vs +1.9% May revised (F/cast was +2.1%)
Japan
Pre market unemployment was better than expected along with Industrial Production along with Retail sales.  Housing Starts and Construction orders due shortly.    Record covid cases and the expectation of State of Emergency being extended hurting sentiment.  
Nikkei opened lower and trendedlower through the morning to 27,300 before a bounce into lunch.  PM open lower and currently trading sideways -440pts (-1.6%) @ 27,341
Topix similar pattern but drifting lower in the PM currently -23pts (-1.2%) @ 1,904
S Korea 
Pre market data was mixed Industrial data +VE but Retail Sales weak. Heat wave continuing putting pressure on power supplies.
Trade data expected on Sunday and PMI data pre market Monday
Kospi opened lower on mixed data and trended lower to 3,210 level and then has traded sideways. Currently -33pts (-1%) @ 3,209
Kosdaq traded in a similar pattern -13pts (-1.2%) @ 1,031
Taiwan 
Taiex opened flat on good local results and outlook. Traded sideways for the first hour but then dipped lower to trade sideways around 17,350 level but sold down into the close -164pts (-0.9%) @17,239
China 
CSI 300 opened lower and sold down to 4,760 in the first 40 minutes before bouncing back to the opening level. Then eased into lunch. PM opened lower -72pts (-1.5%) @ 4,778
Manufacturing and Non Manufacturing due out onSaturday
HK 
Pre market opened @ 26,043 -272pts vs -66pts ADR’s
Inital traded sideways but for the first 30 mins then ticked higher to 26,150 level but then reversed and sold off into lunch. PM has opened lower currently trending lower. Most sectors in the red.
Monday sees stamp duty rise and Biden’s executive order come into force barring US investors from certain HK stocks like Telcos and CNOOC.
Europe
Expect markets to open lower, big day for earnings.  French  GDP growth beat but Household consumption missed,  More data to follow  
Ahead
Eurozone Core Inflation Rate, Inflation Rate, GDP Growth Rate, Unemployment Rate
Germany GDP Growth Rate
France GDP Growth Rate, Household Consumption, Inflation Rate.
UK No data due
US Futures
Opened Dow -20pts, S&P -0.4% NDX -0.9% and have dropped now Dow -112pts S&P -0.8% and NDX -1.3%
Concerns on after market reaction to earnings ahead data on Personal Spending & Income, Employment Cost Index, PCE Price Index, Employment Costs (wages and benefits), Core PCE Price Index, Chicago PMI, Michigan Data Final.


Front Page
Lee chalks up gold for US  
A surprise but reflects the additional pressure the competitors are under due to covid. It will be interesting to see whether Japan’s good performance in the medals table helps the economy or Suga’s election campaign.

Consumer spending boom powers earnings and boosts US growth
• Bumper payouts in mining and oil • Easing of restrictions lifts profits • Delta shadow persists
Whilst the GDP growth missed expectations that was blamed on supply chain disruptions but that it uncertain; it could lead to inflation or it could be that the recover is not as strong as some are hoping.
Worth noting the strong earnings in Europe too as economies and companies benefit from easing covid restrictions. The further easing of lockdown restrictions will indicate how confident people are about the recovery and the new work order.
See inside US growth increases but falls short of experts’ forecasts

Nikola founder charged with lying over electric truck to drive up stock.  
An interesting read. Likely to hurt the development on new energy hydrogen vehicles.

INSIDE
Hong Kong police warnings of terrorist threat criticised as excuse to intensify crackdown.
Looks at the recent incidents in Hong Kong which many feel the authorities are playing up in order to justify the imposition of a National Law on Hong Kong and for its rigerous enforcement.  Others view the recent actions as ‘amateur hour’ by a few that should be dismissed as just that.  
The reality is that many in Hong Kong are unhappy at what China has done by imposing its understanding of the Basic Law. Others who are pro Beijing are happy. The key difference was that prior to the imposition of the new security law both sides were free to express their views, now only some are.
The issues have not gone away but simmer below the surface with some unhappy at the current reality.  The risk to the business status of the territory I think remains high, especially if the authories decide that further suppression is required and the recent moves by the Chinese authorities to ‘target’ the education system could undermine the trust in the markets further.

SoftBank to offload part of stake in Uber

Selling a chunk of its stake in Uber as it wrestles with heavy losses from a bet on China’s Didi Chuxing, say three people familiar with the matter. One can only imagine that this week has been a bad one for the fund, with many of its Chinese investments also being under pressure. An interesting read which suggests that the sale in unrelated to the recent Chinese crackdown; that would make the share sale even more worrying. Little data from the company is not encouraging.

See also LEX SoftBank/Didi: showboat out of China  Notes that this time Son moved quickly to sell stakes in January when valuations were better and this time has been quick to lock in cash rather than doubling down.  It concludes ‘Expect Son to switch out of China further, limiting future declines.’
The question in my mind remains how much is invested in pre IPO opportunities where exits are not easy.

VW to ‘reset’ itself in China after earnings dip
Having been invested in the country for so long it seems to havelost its way a little and is looking to reset its image for its mid-range brands.   That probably  reflects the change in Chinese society; as its high end brands continue to do well. Maybe refecting what President Xi is worried about?
It also mentions about VW being part of a consortium to buy Eurocar to build a ‘leading mobility platform’. The ‘move, which was questioned by analysts, would allow VW to develop services such as car-sharing facilities within an existing company, Diess said.’
I suspect that it’s also a play on wanting to gain more profit from the car hire market; which makes most of its money from buying cars at a discount, hiring them out for a short period and then selling them. With the sales being the most profitable part of the business. It would be interesting at present to see the numbers with secondhand cars selling at the premium.
   
Beijing seeks to ease fears after tech crackdown
Seeking to ease concerns having hurt both foreign and domestic trust in the market so badly.  It also hurts Beijing’scredibility. But by saying it was supposed to be targeted they have highlighted that it is in their mindset to target certain sectors but in the hope that the market would isolate that from everything else. Unfortunately investors don’s see the world that way and the fact that Beijing does is a worry. It is rather similar to the US’s government  attittude to Lehman’s allowing it to fail and no realising the global implications.
One hope’s that Evergrande is not seen in the same way; allowing it to fail could have huge repurcussions for property, banking, bond markets and a number of other sectors.

China lays down challenge to the west on crypto  
by Mohamed El-Erian.
A good read, basically saying both sides of the arguement need to stop being narrow minded. Points to three points
1. ‘technologies driving the crypto revolution, including digitally distributed ledgers of transactions known as blockchains, are becoming more disruptive to a financial industry that has remained for too long relatively inefficient and a source of excessive profits.’
2. ‘despite their instability, cryptocurrencies are gradually becoming a larger part of investor portfolios via allocations to two buckets — risk-mitigating assets that are an alternative at the margin to gold and some government bonds; and opportunistic bets on non-correlated assets.’
3 ‘cryptocurrencies are also somewhat more prevalent in the payments ecosystem. It is worrisome for illicit payments (think of the growing number of ransomware attacks) but more positive for remittance transfers, where too many traditional channels remain slow and expensive.’
Going forward the key is for regulators and the crypto proponents to work together; both sides will need to compromise.
China is pushing the adoption of the central digital currency and as I have written before if they get it out there first they will be setting the rules and that could undermine the position of the USD which I don’t think would be a good thing for the global economy.
Key Beijing has understood the transformational power of the crypto revolution and wishes to co-opt it for its own benefit.

Editorial
China’s misguided crackdown on business

Concerns over Big Tech are fair but fear of entrepreneurs is a mistake.
Some key point
‘But while the “techlash” is now a familiar story, there are important differences. Among the most fundamental is that, unlike in the US, China’s homegrown tech titans often relied on foreign backers in their early stages. Those investors now, in turn, need to use VIEs or US listings to gain a return.’
‘Hong Kong officials are pushing the territory as an alternative, and potentially safer, location for listings but investors will now treat any such assurances with scepticism.’
Concludes ‘Ultimately, this is the most important difference. China’s crackdown is designed in part to demonstrate the state’s control over the economy, in contrast to US and European regulation which generally aims to protect consumers or ensure markets function better. The crackdown on entrepreneurs has not been limited to Big Tech — Sun Dawu, the founder of one of the country’s most successful agricultural groups, was sentenced to 18 years in prison on Wednesday, after clashes with the authorities. Corporate success will inevitably be followed by scrutiny, but viewing success as a threat to be contained could cost China dearly.’