Oct 30 FT Thoughts No Asylum in HK, China's aims, Tech competition and lunchtime updates


02 Nov

Oct 30 FT Thoughts No Asylum in HK, China's aims, Tech competition and lunchtime updates

MARKETs at 1pm HK time
All trading in the red. Apple supply chain names weak as Apple says iPhone sales were -16% but remember it was the quarter before the iPhone 12 release. Weakness in Murata, LG Display, AAC Tech and others

JAPAN opened lower; pre market data was mixed but with US futures weak the market trended lower through the morning to a low of 23,118 before seeing a small ounce into lunch. Opened higher after lunch and trading sideways Currently -0.6% @ 23,192
Pre Market Data
Unemployment Rate Sept 3% vs 3% Aug (F/cast was +2.9%)
Jobs/Application ratio Sept 1.03 vs 1.04 Aug (F/cast was 1.1)
Tokyo Core CPI Oct -0.5% YoY vs -0.2% Sept (F/cast was -0.4%)
Tokyo CPI Oct -0.3% YoY vs -0.2% Sept (F/cast was -0.4%)
Industrial Production Prel Sept +4% MoM vs +1% Aug (F/cast was +2.5%)
Industrial Production Prel Sept -9% YoY vs -13.8% Aug (F/cast was -10%)
Due at 1pm Housing Starts and Construction Orders.
S KOREA Pre market data was better than expected but markets still opened lower.
Kospi trended lower in choppy trading hitting a low at 1pm local time of 2,296 but then saw small bounce; currently -1% @ 2,304
Kosdaq Opened lower but traded sideways in choppy trading for the first 90mins before succumbing to selling pressure and trended lower to 803 before seeing a small bounce. Currently -0.8% @ 808
Pre Market Data
Industrial Production Sept +8% YoY vs -3% Aug (F/cast was +1.1%) Industrial Production Sept +5.4% MoM vs -0.7% Aug (F/cast was +0.9%)Retail Sales Sept +4.4% YoY vs +0.3% Aug (F/cast was +3.9%) Retail Sales Sept +1.7% MoM vs +3% Aug (F/cast was +0.3%)Manufacturing Production Sept +8.3% YoY vs -3.1% Aug (F/cast was +1.1%)Construction Output Sept +6.3% YoY vs -9.4% Aug (F/cast was +1%)
TAIWAN opened lower sold down to 12,557 after 20 minutes of trading. Bounced back to 12,612 level and has traded around there since; Currently -0.4% @ 12,612.
CHINA CSI 300 opened slightly higher but sold down to 4,760 level and then bounced back, traded sideways in the band 4,776/4760 for most of the morning but then sold down to 4,753 before a bounce into lunch Currently -0.2% @ 4,761
Shanghai Comp traded the same pattern currently -0.1% @ 3,270
Shenzhen Comp similar pattern currently -0.4% @ 13,463
ChiNext currently -2% @ 2,698
HONG KONG Opened 24,536 -51pts vs -37pts @ 24,549 ADRs but worked higher though the morning briefly breaking into the green ahead of lunch. Currently flat @ 24,580
E-commerce names mainly +VE, Chipmakers +VE Financial weak. Results in focus
EUROPE Expect market to open lower as covid cases and lockdown measures worry investors
Data due
EUROZONE GDP Growth Rate, Inflation Rate and Core Inflation Rate, Unemployment Rate
GERMANY GDP Growth Rate, Retail Sales
FRANCE GDP Growth Rate, Inflation Rate, Household Consumption,
UK Nationwide Housing Prices
US Futures opened -220pts but eased back to -150pts in the first hour. S&P and NDX lower. Apple weak after results and with no guidance; iPhone sales were down but its the quarter before the new iPhone 12 release.

FT
US warns Hong Kong asylum seekers. Pro-democracy activists told American consulate cannot receive applicants. Comes after Tony Chung was arrested under the new Security Law and it is believed that he was going to try and seek asylum at the Consulate. The State Departments notice is designed to avoid a confrontation with China on the issue. It makes clear that asylum can only be requested on arrival in the US.


China aims for ‘self-sufficiency’ in tech sectors. Looks at the highlights from the fifth plenum. Where a key element was reported that 'China will prioritise expanding domestic demand and achieving “major breakthroughs in core technologies”,’. Actual details are scarce and the detail is unlikely to be known until next years meeting of the Chinese Parliament takes place. As I wrote in this mornings Macro Thoughts:
The key elements being
The Committee proposed to achieve socialist modernization by 2035, meaning there will be a big surge of China's economic power, technological power and comprehensive power.
It also targeted GDP per capita to reach the level of a medium developed country. It expects GDP to exceed 100tn Yuan this year, slightly up YoY. It is looking to focus on higher quality growth. No mention of a growth target or doubling GDP over the next decade.
Little mention of the implementation of ‘dual circulation’ just its promotion and it combined efforts to expand domestic demand with supply side reforms.
Strong Strategic support for Tech with an aim to achieve major breakthroughs in key technologies by 2035.
Pushing forward green low carbon development
Deepening reforms in all aspects, but gave few details. It reiterated it would let the market play a decisive role in resources allocation. It would also make a “major breakthrough” in reforms on property rights. The party said China would promote coordinated regional development and a new urbanisation drive; likely aiming to try and narrow the urban-rural gap that has been widening.
China would implement strategies to address the ageing population, without elaborating.
China would promote Taiwan’s reunification with the mainland and peaceful cross-straits development. Also to maintain the long-term prosperity and stability of Hong Kong and Macau.

Japan’s central bank lowers growth forecast. Looks at yesterday’s BoJ meeting and the revision highlights the slow recovery in Japan as both business and individuals remain cautious. It remained committed to its plans to purchase ETF’s and maintain its commercial paper and corporate bond levels too. I still think that the negative interest rates are hurting individuals in Japan. If they were were getting a return on their savings then they would have more confidence about spending money. It is also notable that Japanese companies have strong balance sheets and are not, for the main part, in need of cheap financing.


Tech giants start to encroach more deeply on one another’s turf. Looks at the fact that Apple is developing its own search engine. Notes that m the past they didn't need to encroach to be successful and the fact that when they did it tended to be expensive and in most cases failed. So partnerships in key areas developed or in some cases mutual truces were agreed. But with Apple’s move things seem to be changing. Comes as Facebook moves into cloud games but saying it wouldn’t be available on Apple devices 'blaming the iPhone maker for exerting “control over a very precious resource”.’
The DoJ action last week against Google may also prompt more competition amongst the main players. But Google still has a number of advantages compared to its rivals, brand, eyeballs, data and monetisation. In the past it paid Apple well in an effort to discourage Apple from entering the search field but the DoJ action could curtail that and Apple will want to make up for any lost revenues in anyway it can.

For Interest
Distressed debt funds sense profits in pandemic.
The industry expects corporate bankruptcies to throw up lucrative opportunities, but not on the scale of the financial crisis
An interesting read because it is another sector where the business has changed partly due to the intervention by central banks and Governments; which has meant that more companies are able to ‘survive’. But also because some funds are being more legalistic; looking at the terms of loans to gain advantage more than the fundamentals of the business.

Money market funds braced for rules reform Regulatory changes due to Covid impact risk denting sector already hit by low rates. The key issue here seems to be the fact that without money market funds a lot of companies find their source of short term funding unavailable.

Opinion A disturbing new signal from the CDS market. Looks at CDS auction prices that have fallen significantly this year. Partly due to changes in capital structures with distressed companies finding it easier to raise emergency funding. That means ‘zombie companies’ can keep going for longer. Also the fact that those loans take priority over bonds holders in the bankruptcy. Effectively in the hunt for yield, lenders reduced covenants and that it now coming back to bite them.

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