Oct 22 FT China's vaccine diplomacy, RMB Strength, Copper, Shipping, Cathay and lunchtime updates
MARKETs at 1:10 HK time
JAPAN opened lower @ 23,525 sold down to 23,460 level and traded sideways into lunch. Pm opened slightly lower and has tested 23,435 level but Currently -0.7% @ 23,470. Expect market to trade sideway. Obviously US stimulus a key but tomorrow we get Inflation data and flash PMI data so we could see some weakness into the close.
S KOREA opened lower as hope of a US stimulus dealing the short term fade; with Tech and Auto’s weak with large caps leading the declines
Kospi opened at 2,355 (vs 2,370 Wednesday’s close) and then traded 2,360 to 2,343 Currently -1.2% @ 2,344
Kosdaq opened lower 827 ( vs 830 Wednesday’s close) and has drift lower through the day currently -1.9% at 815.
TAIWAN opened lower at 12,855 but rallied in the green and tested 12,890 several times but unable to break out and sold down to 12,827 before rebounding and trading sideways; currently -0.1% @ 12,860 Market showing resilience as the demand for smartphones and tech seen as remaining good
CHINA CSI 300 opened lower @ 4,370 and trended lower for the first hour to 4,725 before finding support and rebounding to 4,767 only to ease lower into lunch -0.8% @ 4,753
Shanghai traded in a similar pattern at lunch -0.8% @ 3,297
Shenzhen traded a similar pattern -0.9% @ 13,341.
HONG KONG Opened at 24,696 -58pts vs -75pts @ 24,679 ADR’s. Market sold down to test support below 24,600 few times but eventually bounced off 24,556 and rallied to 24,750 around 11:30 am before easing lower into lunch -0.3% @ 24,681. In the morning session Macau names saw good support after Sands numbers in the US But E-commerce names weak as Ant get final approval for IPO and Telcos were weak after yesterday’s rally
EUROPE Expect markets to open lower following Asia and with hopes of a US stimulus being agreed and enacted quickly. Earnings also in focus along with US initial and continuing claims.
EUROZONE Consumer Confidence Flash
GERMANY GfK Consumer Confidence
FRANCE Business Confidence, Business Climate Indicator,
UK CBI Industrial Trends Orders & Business Optimism Index, GfK Consumer Confidence, Speech by Haldane and Baily
US Futures opened flat (-17pts) but weakened and are currently -200pts with S&P and NDX also weak as the FBI announces about Russian and Iranian interference in the US election.
Earnings in focus after the bell Wednesday good numbers from Tesla and Las Vegas Sands but weak numbers from Chipotle Mexican Grill.
143 company Earnings due today including American and SouthWest Airlines, AT&T, Coca-Cola, Intel, Kimberly-Clark, Northrop Grumman, Citrix, Dow Inc, Mattel and others.
Data Initial Claims, Initial Claims 4 week Average, Continuing Claims, Existing Home Sales, CB Leading Index, EIA Natural Gas Report, Kansas Fed Manufacturing Index, 5 yr TIPS Auction. Speech by Barkin and Kaplan.
US official warns of election interference by Iran and Russia. National intelligence director blames Tehran for emails seeking to intimidate voters. Statement was made at an after market press conference. The FT says
‘ The announcement appeared to be connected to a wave of emails this week sent to Democratic voters that purported to be from the Proud Boys, a far-right group that gained notoriety after Mr Trump told them to “stand back and stand by” at the first presidential debate.The emails, sent to voters in Florida and Alaska, urged their recipients to vote for Mr Trump “or else”, according to US media reports.’
A further twist in the run up to the election that appears to be to close to call. Tonight there will be the last of the Presidential debates and it will be interesting to see if the decision to mute microphones during the opening remarks makes for a better event.
China steals a march on US with Covid vaccine supply diplomacy. Looks at how China is offering access to a vaccine as part of its push to widen its sphere of influence. The offer has been made to countries across Asia, Africa and Latin America and follows pledges to Malaysia, Thailand, Cambodia and Laos who will also be given priority access. It will be watched with interest. Remember that China also offered masks and other emergency equipment to the west after the outbreak; much of which was found to be defective or of poor quality. One would certainly hope that the vaccine is of the highest standard.
Worth also noting in the article that it says 'São Paulo state has signed a deal to receive an early shipment of 46m doses of Sinovac’s vaccine, which is in phase 3 trials in Brazil.’ But headlines this morning has Brazil's President Jair Bolsonaro said on Wednesday the federal government will not buy a COVID-19 vaccine from China's Sinovac, one day after the health minister said it would be included in the nation's immunization program.
It will be interesting to see whether; if Joe Biden wins the presidential election, US policy on vaccine will change. At present Trump has not signed up to the World Health Organization-backed Covax initiative.
Also read Second wave of Covid proves less lethal than first outbreak. Makes the point that improvements to testing and medical care in hospital learnt from the first wave boost survival rates. It also reflects that in the second wave more younger people have been infected and their youth gives them a better chance of survival than the old who suffered most in the first wave.
It also notes that social distancing has helped but mentioned that some think the virus has mutated and become more infectious but less virulent; although this has not been seen yet by scientists.
Renminbi’s jump piles pressure on Beijing to act. As the Renminbi trades at it strongest for over 2 years pressure is growing for Beijing to act. It has already made it easier to short the currency but it is difficult to see what the PBoC can really do because the strength is largely due to US stimulus plans rather that anything in China’s control. The concern is that the strong currency will make Chinese exports less competitive and that could impact China’s recovery.
The article notes that the PBoC can utilise the daily pricing mechanism but that will only have limited impact . The other issue is that the rally in the Chinese markets and its bond offerings have also increased demand for the currency.
I would expect China to do little in the short term until it see negative impact. It key exports of electronics and medical equipment are in good demand not least because other producers are constrained by the impact of Covid; something that China seems to have under control.
Copper hits $7,000 a tonne for first time since 2018 on ‘green-tinted’ surge. Linked to President Xi’s pledge for China to go carbon neutral and also the strong Renminbi making the commodity cheaper for Chinese buyers. An interesting read.
Ant given final approval by Hong Kong stock exchange for world’s biggest IPO. Having now ticked all the boxes they will now be keen to get on with the IPO and aim to get it done ahead of the US election. It is likely to put further pressure on the HK dollar and the Renminbi with the issue being split between HK and Shanghai. It is likely to put pressure on margin traders and could prompt some investors to lock in recent gains in order to have cash to deploy.
It will be interesting to see how the Shanghai element is received on the Star board.
Cost of shipping from Asia to US rises sharply. Comes as shipping lines canceled hundreds of sailings in the earlier part of the year and have been slow to resume some routes. The rates have risen significantly with prices from Asia to the US up about 25% YoY, as US inventories are at their lowest levels since 1990. Long term rates still lag a long way behind the spot rates. It also notes how China recently met with the major shippers and demand that they keep rates in check. It also mentions how ‘the US Federal Maritime Commission has warned that it “has heightened its scrutiny of markets, individual ocean carriers, and the three global carrier alliances in response to the unusual circumstances and challenges created by the Covid-19 pandemic”.’
Good news for shippers especial as fuel prices remain low. On Sunday HMM in S Korea said the company would dispatch two more container ships to support South Korean exporters that are struggling to ship out their products to foreign countries amid the protracting COVID-19 pandemic.
Positive then also for the exporters as the US and other countries continue to restock.
Exit the Dragon Cathay Pacific scraps regional brand and axes staff in ‘fundamental’ shake-up. Looks at the restructuring of Cathay Pacific. I have to admit I never fully understood why they kept the Dragonair brand or the amount they spent on branding it, when almost everyone who used it knew it was Cathay. It quotes an ex colleague of mine who has questioned whether the cuts are enough; key will be the opening of travel bubbles and the arrival of a vaccine.
Judging but the response to flight to nowhere being offered I think airline travel could recover faster than many expect. People love to travel.
For Cathay though I think a more important issue is the structure of the board. For too long many on the board have been John Swire executives rotating around the various part of the Swire empire. Whilst many of them have good management skills running an airline in a very competitive market needs specialist. It you look at the length of tenure of the board there isn’t really anyone that you would say matches the experience of Ryanair O’Leary or Quantas’ Alan Joyce. That is the change that really needs to happen if the airline is going to be successful again.
LEX Cathay Pacific: jet pain. Asks whether the staff cuts are really such good idea and if, would things pick up quickly they will be able to get staff to come back. Reading an interview with a local Cathay flight attendant it seems likely that many are unlikely to return. Lex concludes
'Investors have already pulled the ripcord. The bigger issue is not whether Cathay can regain earnings altitude but whether its long-suffering staff will bail out for good. That could make its reputation for service hard to maintain in the blue sky years that are surely ahead.’
As I note above I think some of the staff they really need to lose are those John Swire executives and get some aviation specialists in not to advise but run the company. Old Cathay pilots talk of the days when management listened to their advice about flying and cost savings. But over time as the company grew a 'management culture’ grew which become confrontation and ‘about power’. I would hope the airline can go back to a culture where everyone is working from the same hymn sheet. To have a well run company, that is liked by customers and profitable for all.
PayPal wins go-ahead for bitcoin payments. The announcement prompted Bitcoin to rally overnight. Basically PayPal will begin offering support for cryptocurrencies having got permission from the New York State Department of Financial Services; the licence is limited and its teaming up with Paxos, a New York fintech start-up. But is gives the cryptocurrencies another layer of acceptance. It notes that PayPal’s main rival Square has been doing well by offering support for cryptocurrencies via its Cash app.
At present the service looks to be for US only an it will be interesting to see how the PayPal infrastructure deals with the new addition. My personal experience of PayPal recently was not good as their remote working assistants had limited ability to help serve client issues. But for the crypto world this is another step towards being widely accepted as currency.
Ericsson buoyed by shift in strategy and China 5G deals. Looks at Ericssons good results much of which is at Huawei and ZTE’s expense. Key going forward will be the continued implementation of the three year plan to cut costs and invest in technology and any retaliation from China against the company. But certainly yesterday investors were happy with the results and the upward move in the share price.
Investors opt for ‘do nothing’ trade ahead of US election. Memories of shock 2016 result scare asset managers away from big directional bets. Basically saying that after 2016 and with the polls as close as they are most investors are holding their positions. Which makes sense because even if Biden wins changes are not going to be immediate.
European stocks will be attractive again in world of low yields. By Nick Nelson is head of European equity strategy at UBS
Looks at the prospects for European earnings and what indications can be learnt from them. Most interestingly it notes that European companies are still paying dividends in line with the 30 year average which could see them undergoing a re-rating and an expansion of the valuation multiples. An interesting read
Good, bad and ugly of soaring tech stocks
'There are two ways to look at the market’s rise. Is it speculative, irrational, unsustainable or false in some way — fuelled by a mania for technology stocks, a wave of young investors trading on their mobile phones and the provision of central bank liquidity in response to Covid-19?
Or is it a rational, logical response to a severe economic shock and the resulting likelihood of low interest rates for a long time? Although investors always fear a bubble, the rational explanation is even more alarming.’
A good read
Google antitrust case draws rare political unity. DoJ aims to land harder blow than Brussels during 1998 action against Microsoft. It is interesting to note that the case has support from both sides of the house. It will be closely watched and could have wide implications on the Big Tech companies that currently dominate the US markets. Nothing will happen quickly but it will be interesting to watch what comes out of the woodwork.
See also the Editorial Google case is a chance to reframe antitrust debate. Big Tech’s dominance demands a rethink of how rules are applied. Suggest that the case will move from 'Viewing anti-competitive practices through the prism of price at the point of use has enabled tech giants, who often win market share by offering cheaper goods and free services, to dismiss charges that they are too powerful.’ Instead to focus on the use of ' techniques ranging from predatory pricing to control of essential infrastructure to create an architecture of power with ever more unassailable barriers to entry.’
It concludes 'Big Tech has provided countless benefits to society. Yet competition is no longer, as the industry’s advocates claim, merely just a click away. In challenging this, regulators cannot rely on arguments from the Bork era. A sea change in how antitrust rules are applied is needed. It is heartening that the DoJ has taken up the fight.’
LEX Google/antitrust: unparanoid Android.