June 19 FT & Asian Update Oil deal, Chinese advantages, Reform in Japan and more

This and previous notes can be found at  Substack ( Asian Market Sense )
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Asian market seeing dramatic risk off sentiment with surging covid cases raising concerns over the potential impact on the recovery plus China’s crackdown on Tech and deteriorating US/Sino relations. The OPEC+ oil deal putting oil names under pressure too.
Market opened lower finding initial support around the 7,250 level. It then sideways around that level through the morning and improved slightly after lunch.   Healthcare +VE with CSL +2.2% but Financials and miners lower.  New covid cases and the lockdowns  continue to overhang the market.  
A shortened trading week with markets closed Thursday and Friday for the start of the  Olympic’s.  But covid concerns running high as PM Suga’s ratings fall.  Toyota has said that it will pull its Olympic related adverts. Nintendo says new switch console will yield higher margin, no plans for additional models.
Nikkei opened lower -337pts at 27,663 saw an initial bounce but trended lower to 27,494 shortly before lunch.  PM market opened higher but it is drifting lower.  Currently -415pts (-1.5%) @ 27,588
Topix a similar pattern; opened 1,913, touched 1,900 pre lunch. PM opened higher but drifting lower; -28pts (-1.5%) @ 1,904
S Korea
KDCA reported 1,252 new covid cases this morning.
Kospi opened lower and trended lower through the morning to a low of 3,236 around 11am before working slightly better. Currently -32pts (-1%) @ 3,246
Kosdaq opened @ 1,050 level and traded in a tight range; 1,047/1,051
Taiex opened lower @ 17,850 and trended lower to 17,700 in the first 70 minutes and then worked better but resistance at 17,800 level. Closed -104pts (-0.6%) @ 17,791 Electronics under pressure with rotation into old economy especially shipping and steel.
CSI 300 opened lower and sold down to 5,048 where it found good support before bouncing into lunch. PM saw the market rally back into the green briefly. Currently -7pts (-0.1%) @ 5,087
Suggests that Team China out supporting the market.
Pre market opened @ 27,787 -218pts vs -194pts ADR’s and sold down to 27,400 in the first hour. It then worked better in lunch. PM opened slightly higher but trending lower; currently -477pts (-1.7%) @ 27,528
Tech lead the declines with news of more investigation into Didi and others plus Biden’s warning. Covid’s recent surge and the potential -VE impact on the recovery prompting broad weakness. Evergrande -10% and companies linked to it weak as a units bank deposit was frozen. But Chalco and iMAX +VE on good results
Futures FTSE -50 pointsat 6,953,  DAX -85 points at 15,440, France’s CAC 40 -36 points at 6,416 and Italy’s  FTSE MIB -208 points at 24,472, according to IG.  Oil lower after OPEC+ agreement.
US Futures
Opened Dow -64pts, S&P -0.15% and NDX -0.11%, ahead NAHB Housing Market Index.  Now Dow -169pts, S&P and NDX both  weak.  

Front Page
Merkel meets flood victims

Oil producers agree to lift output as prices reach three-year high
• Monthly rises planned • Pre-Covid level targeted by 2023 • Market tightening forecast.
Sunday’s meeting results in a deal that will result in higher production levels ahead and short term weakness in the oil price.  
Key points are the group remains an important body in price setting.
Members are happy with the current price level and outlook for demand.

US-made camera drones costlier and less able than Chinese craft they replace
Worth a read as it shows the advantages that China has in some areas.
Whilst it does not go into detail it would appear that the China has clear advantages in both production costs and performance. It could be the attempt to make specialist drones rather than accepting a more general specification. But it also mentions that the department is working with several companies but many of the parts are still Chinese.
It illustrates how the US and most of the world have lost out to China in a lot of basic areas of manufacturing who has focused on the sector and made it their own. If countries are determined to retain the ability to make everything themselves then costs are likely to rise significantly.
It is just one illustration, China has already demonstrated its cornering of the market in 5G and 6G specifictions, its desire to reset the terms of the web and it is keen to be a leader with its digital currency. The rest of the world will have to remain alert and engaged.

Democrats struggle to see beyond Powell as Fed chief
February change urged by some but party finds few issues with incumbent.
An interesting read about the whether Mr Powell will be given another term as Fed Chairman. Most I think would agree that he has shown himself to be a safe pair of hands but there are other options and its been rumoured that Larry Summers is interested.

South Korean bar closures drive increase in drinking alone
A worrying read about the unintended consequence of covid on social drinking. Although investors might be more interested in the rising consumption of alcoholic drinks in the country.

Companies & Markets
Bears retreat Federal Reserve’s tilt towards tighter policy unshackles US dollar bulls
Looks at how some people are becoming more positive on the USD outlook. It’s an interesting read because last week Double Line Capital’s CEO Jeffrey Grundlach provided a fairly dire long-term assessment on the US dollar in an interview on CNBC, saying he thinks the greenback is “doomed.” He said “ultimately, the size of our deficits — both trade deficit, which has exploded post-pandemic and the budget deficit, which is, obviously, completely off the charts — suggest that in the intermediate-term — the dollar is going to fall pretty substantially.”
“That’s going to be a very important dynamic, because one of the things that’s helped the bond market, without any doubt, has been foreign buying, with the interest rate differentials having favoured hedged US bond positions for foreign bond investors.” Key is that the “waning foreign appetite” of US bonds for some time now and, to this point, it is not going to be that easy for the Federal Reserve to withdraw monetary stimulus and their direct interventionist support for the bond market, any time soon.

TSE chief defends Japan reforms after Toshiba woes
Worth a read but many do not believe that there is any real reform taking place in Japan. For years it has been talked about but little of significance has happened. Some are saying that the Toshiba is a one off but many believe it may more normal.
It will be interesting to see whether the ESG movement has more success in enacting change in Japan than the government.

Remains of Anbang valued above $5.2bn
Six consortiums show interest in buying what’s left of jailed tycoon’s group.
The final disposal is being watched as a playbook for how other defunct groups might be handled. Key points are that Beijing is keen that investors learn that the state will not bail out failed companies. It is also keen that the assets are bought under a diverse ownership structure rather than by just one owner.
It comes at an interesting time because Anbang was seen as an example of hidden leverage and corporate debt. Something that Beijing and the PBoC is still trying to uncover and reign in.

Inditex and the future of retail
The Spanish clothing company is betting on a hybrid model that uses stores as a shop window and also as mini-distribution hubs. But it insists that the death of the high street has been greatly exaggerated.
A good read about the use of tech, in this case RFID tags in order to track stock. It’s design and supply chain model and how the company believes in prime locations. Also an awareness of the threat from China

The two big reasons to doubt the global boom  By Ruchir Sharma Morgan Stanley Investment Management’s chief global strategist.
He is worried about the impact of the crackdown in China on the Tech companies. He also doubts that US consumers are about to rush out and spend their stimulus cheques. Those two things make him think that the potential boom could prove transitory.

Post-pandemic inflation fears are overblown  By Rana Foroohar.
She thinks we should be thinking about the impact on inflation by the change of lifestyle brought about by the pandemic and that she thinks could be deflationary.

Europe’s green gamble could make it a low-carbon leader  By Martin Sandbu   An interesting read basically saying that Europe is pinning its hopes on long term gains.