FT 1 June China more stimulus? Kim demands cash, National Security in China, and more.
Markets Opened higher and are continuing to worked higher on good initial data out of Japan, S Korean and China. But Taiwan (PMI dropped) and Hong Kong (gets retail sales after market) seem to be levelling out. Significant short covering and some MSCI related volume in the initial trading, for many the relief that Trump’s action over Hong Kong was not as drastic as it could have been and so far no retaliation from China. The Caixin PMI data was better than expected after the official data out on Sunday would have suggested. (Press releases at https://www.markiteconomics.com/Public/Home/PressRelease/976d7a2e5fa84d70be58464da10f7ff9 ) The detail still suggests that conditions remain subdued and I think that the real impact of the lock-downs will not be seen for a couple of months as consumers appraise their personal circumstances.
US futures which opened -200pts are not +64pts so market should continue their positive trend, unless we get news out of China or the US to upset the current position
In the on-line edition
China’s stimulus sceptics need not fear side-effects this time Sets out that the country faces a different and more urgent challenge to the one it faced in 2008; written by the Vice President of JD.com and Chief economist of JD Digits. Compares what happen in 2008 and the current position; thinks that the current phobia against final policy is misplaced. There were some painful legacies of the spending but the alternative would have been worse. Today is a very different situation and calls for even greater urgency than was the case in 2008. Not mentioned but obviously the scope for undertaking the same type of infrastructure spending has gone; the roads, bridges and railways have been built and so value adding alternatives have to be found. Ne notes that Beijing has vowed to target six priorities 'employment, basic livelihood, companies, food and energy security, stable supply chains and smooth operation of government.’ But to project jobs at the SME’s would require a similar plan to the US’s Paycheck protection programme and as yet not such plan has been suggested only tax cuts.
He sets out that China has lots of scope for more stimulus having outlined so little so far. But I wonder if that is true, we don’t know how much money China has really spent on Belt and Road, which was in itself supposed to be a great driver for commerce but in the last year has seen some notable set backs.
He expects the new spending to be targeted at things like data cents, new industrial centres with AI and cold chain logistics; which could be the drivers for the next decade in his view; key is well researched, structured spending.
Key remains fiscal action; that is the same the world over, monetary policy has limited scope now; although China does have more scope than most. Other items mentioned in the final paragraph are rural land reform and opening up the financial sector.
A lot of coverage of the riots in the US. These were riots and clearly show that the actions in Hong Kong have been protests; albeit with a minority of vandals being involved with the protests. US Markets are going to be cautious I think on Monday; its another -VE for the retail sector and obviously -VE for the Insurers although I would imagine some landlords might be grateful for the insurance money in the current climate as long as their policies covered riots.
I watched an Apple store being looted and wondered how easy it will be to trace the stolen merchandise; all the Apple inventory would have serial numbers and so traceable when people try to register their new machine on-line.
Some articles look at the implications of the riots on this year’s elections. I also wonder if the lock downs played into the strength of feeling?
US futures opened -200pts this morning but have been recovering and currently +VE. US markets are still priced for near perfection and these riots are not that. Worth reading Citi warns markets are ‘way ahead of reality’. They are telling corporate clients they should raise as much money as possible before investors realise the true cost of the pandemic. They expect the pain and collateral damage to start becoming apparent in Q2. They don’t expect a V shaped recovery. They and the other banks are benefiting from the fact that companies have already raised $1tn in debt this year. Banks have also seen significant increases in trading revenues with JPM estimating Q2 trading revenue could be up 50% YoY. It does note that activist activity could prompt traders to be more circumspect. Also read Numbers game Bumper performance from big tech masks pain for most listed groups. Another article noting that the big rally in US stocks has actually been driven by a few companies 'A group of 10 stocks with a market capitalisation of at least $150bn that have delivered 20 per cent annualised growth over the past five years now represents 27 per cent of the S&P 500, according to Deutsche calculations.’
Kim demands cash from North Korea elite Dictator may issue bond as sanctions and Covid-19 batter the economy. The first indication of how much pressure the North Korea economy is under nit just from sanctions but probably also from covid-19 which has meant a lot of trade with China has suffered. The key is that the regime is seeing its problems increase and that could make mean it because even more volatile and erratic in the months to come which could have -VE implications for S Korea and Japan.
China rounds up Wuhan citizen journalists and activists who document Covid-19 fallout. Looks at how Beijing is seeking to ensure that its narrative on how the covid-19 incident unfolded is the only narrative. Notes the ‘disappearance’ of citizen journalists Zhang Zhan, Chen Qiushi and Fang Binalong along with tycoon Ren Zhiqiang. It is not just the publishing of information that is being clamped down on the report says 'activists Chen Mei, Cai Wei and Mr Cai’s girlfriend, who ran a digital archive of Covid-19 articles and social media posts, were arrested by Beijing police,’ The article notes that 'Police notices said they had been placed in “residential surveillance at a designated location”, a form of detention and interrogation usually reserved for crimes deemed to endanger national security.’ Maybe that illustrates why the people of Hong Kong are worried about the imposition of a National Security Law. Currently in Hong Kong all of those activities are allowed.
World’s richest farmer faces chop to fortune. Normalisation of prices after swine flu set to hit wealth of Chinese pig merchant. Looks at the growth of Qin Yinglin’s pig farming business Muyuan Foods. Key point for investors to note is that this is an example of how consolidation in necessary and profitable for businesses in China. Muyuan has more self owned pig farms than its competitors which allowed it to have greater control over hygiene and biosecurity. Key during the African Swire Flu (ASF) outbreak. It notes that as the ASF comes under control pork prices will ease and so to will the share price of Muyuan. But other areas of farming and in other sectors of the economy China needs to consolidate. Logistics; already SF Express is becoming a leader but they is a lot more that needs to happen.
Chinese tech fights for Singapore foothold Companies vie with US for regional dominance after relations sour. Looks at how a number of Chinese tech companies like ByteDance, Alibaba, Huawei, artificial intelligence start-up Sense-Time, online travel platform Ctrip, social network site YY and telecoms provider China Telecom are all looking at Singapore where a number fo US companies like Facebook have already established themselves and Twitter is looking to set up its AsiaPac engineering centre in the city.
Renault and Nissan map out post-crisis future Groups set out areas of collaboration and cutbacks as they seek to move on from era of Ghosn and coronavirus. Looks at the new plans and basically notes this is the last ‘roll of the dice’ for the group.
Opinion The world may be entering a post-dollar era. Looks at how the current changes due to the US changing stance and becoming protectionist coupled with the impact of covid-19 are changing the world and that we are likely to see a more bipolar world ahead. The USD is still a key currency even if other countries would like to see that dominance decline there really are not any violable alternatives. However it notes how China has been buying more gold recently and testing its won e-RMB cryptocurrency. There is also the EU stimulus plan; the debt from which will be paid back in Euro’s which would increased the demand for holding Euros. Weakening ties between US and Saudi Arabia which would weaken the petrodollar and could even see it replaced by the Rmb one if China’s demand for oil remains strong.
There are also questions over the 'Fed’s unofficial backstopping of US government spending in the wake of the pandemic has politicised the money supply.’ Although some say the global nature of the US dollar mean that it is strictly linked to one view of the US. But that relies on the political credibility of the US which could be said to be changing. An interesting read. But it doesn’t mention the other big risk which is Trump’s weaponisation of the US dollar. First in access and links to the US banking system and more recently in access to the the US markets and now the use of US of Federal pension money. That is, I think, more likely to drive countries towards finding an alternative and is possibly one reason why cryptocurrencies have a bigger role to play in the future.
Feedback and comment welcome.