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Asia mixed; news that Cathie Woods’ Ark selling out of Chinese Tech on a valuation point of view as Apple asks suppliers to increase supplies. Temasek has done well out of China but doesn’t say if it remains committed. Caution on rising covid cases, rising US inflation, Powell’s testimony tonight and tomorrow’s Chinese GDP along with other significant data like retail sales and unemployment.
Market opened lower but worked higher through the morning on good confidence data to peak at 7,369 at 11:20am and then like yesterday trended lower; currently +8pts (+0.1%) @ 7,340. Covid cases and an extension of the lockdown -VE At lunch miners and energy were flat.
BNPL weak on news Apple entering the sector, Macquarie Telecom strong on news it would build a super sized data centre.
NZ$ strong on news the RBNZ would end bond buying
Consumer Confidence Index Jul 108.8 vs 107.2 Jun (F/cast was 105)
Consumer Confidence Change Jul+1.5% vs -5.2% Jun (F/cast was -2.5%)
Nikkei opened lower (28,517) but worked better though the morning to test yesterday’s closing level mid morning but then eased back into lunch at 28,650 level. PM opened lower but worked back to 28,650 level.
Topix opened lower but rallied back to flat in early trades and then traded sideways.
PM Suga’s popularity dropping. Focus on earnings. Tire makers seeing weakness. Tech mixed as Apply increases orders to suppliers. SMFG said to buy a 5% stake in Jefferies. Continued weakness in Nippon Paint and gains for Olympus.
Data out pre market
Tankan Index Jul 25 vs 22 Jun (F/cast was 20)
Out at 12:30pm
Industrial Production May -6.5% MoM vs +2.9% Apr (F/cast was -5.9%)
Industrial Production May +21.1% YoY vs +15.8% Apr (F/cast was +22%)
Capacity Utilisation May -6.8% vs +1.1% Apr (F/cast was +0.9%)
Pre market data was better than forecast but new covid cases at 1,615 hit a new high and is the eigth day above 1,000. BoK rate decision tomorrow no change expected but inflation concerns remain.
Kospi opened slightly lower but sold down to 3,250 within the first 20 minutes. Then bounced and worked better to 3,265 level around 10am. Then traded sideways 3,260/265
Kosdaq opened flat but sold down to 1,038 before bouncing back to flat in the first hour. Traded sideways around flat for the next hour and then worked better to 1,045; currently drifting lower.
Export Prices Jun +12.7% vs +12.6% May revised from +12.3%
Import Prices Jun +14% vs +14.2% May revised from +13.8%
Unemployment Rate Jun 3.7% vs +3.8% May
Taiex opened higher and tested 17,940 in early trades on news that Apple was increasing orders for iPhones. But it then sold down to 17,720 before rebounding to flat and currently trading sideways around flat. Investors watching for TSMC’c investor day tomorrow. A series of earthquakes in Hualien slight -VE too
CSI 300 opened lower and trended down to 5,080 through the morning before a slight bounce but resistance at it approached 5,100. At lunch -46pts (-0.9%) @ 5,095. Caution ahead of GDP, Retail Sales, Unemployment and Industrial Prodcution tomorrow morning. Also worries in International relations and debt defaults as local authorities prevented from expanding their balance sheets.
Pre market opened 27,965 +2pts vs -98pts ADR’s but sold down through the morning to 27,700 level before a small bounce into lunch. Choppy trading which suggest some support from Team China. Broad weakenss on news of Biden warning US companies about operating in Hong Kong and rumours of more sanctions. T/O a little light which suggest investors remain in wait and see mode. HK Property weak on concerns that higher inflation could see rates rise.
Healthcare +VE. Talk that Lalamove may shift its listing from the U.S. to Hong Kong to avoid China’s new scrutiny on user data.
Expect a lower open ahead of UK inflation data and EU industrial production along with covid concerns also weighting on the market.
Opened flat Dow +9pts, S&P and NDX slightly +VE. Focus tonight on PPI data, Fed Chairman Powell’s Testimony and the Beige Book.
Strife kills 45 in South Africa
The army said it had deployed troops to areas including the cities of Johannesburg and Durban to help police tackle deadly violence and looting as unrest sparked by the jailing of former president Jacob Zuma entered its fourth day.
Gathering pace of US inflation sets test for Fed policymakers
• 5.4% rise in consumer price index • Sharp acceleration in June • ‘Transitory’ view challenged.
Yesterday’s data raises some questions about the Fed’s stance that inflation is transitory. It was interesting to see US markets turned cautious waiting for more clarity from Powell tonight, rather than try to reposition. The bond market reacted with the T10 moving swiftly but the rest of the market is just waiting. The Fed’s Daly and the Whitehouse re-iterated that the inflation was transitory and would ease.
In reality we will only know over time and certainly many of the pressures will ease over time (like secondhand autos as the chip shortage eases) but the crucial issue is how it impacts peoples view with regard to wage inflation.
I expect tonight’s testimony by Powell will confirm he still believes it is transitory, that the Fed remains data dependent and that it has the tools to cope. Interestingly Daly mentioned that the Fed could taper early
White House to warn companies over perils of doing business in Hong Kong.
The key element here seems to be the consistency of the Biden administration implementing his election promises to be tough on China. What is also becoming apparent is that there is pressure both directly on China and now indirectly on companies dealing with China. That may undermine the Chinese leverage going forward.
At this stage the details remain vague but it is clear that relations remain strained and it is worth noting that nothing has been said recently on the trade agreement phase 1 or 2.
Afghanistan warlords rally forces to fight resurgent Taliban
Worth noting because China is likely to get draw in and so far it would appear on the side of the Taliban. So any resurgence of local warlords is just going to complicate matters. The fact that China has already openly held talks with the Taliban is unlikely to endear them to the warlords.
Companies & Markets
Goldman rise in revenues driven by asset management
• Division’s sales soar 144% to $5.1bn
• M&A surge boosts investment fees
Looks at the results. Whilst good I think the outlook is tough, there are no areas of easy growth.
Lower rates and lacklustre loan demand hit JPMorgan
Also LEX Wall Street banks: sympathy card
It concludes ‘Consumer, not institutional, products appear to be where big banks are most vulnerable.’
HK doxing crackdown deepens fears over free flow of information.
An interesting read. The new proposals raise many concerns from limiting freedom of expression to encouraging fraud. It notes that some updating of Hong Kong’s data law is required but not in the heavy handed way currently being proposed. The biggest concern for many is that this is another small undermining of Hong Kong’s reputation as a international business centre that operates with internationally recognised legal standards.
It makes the point
‘Hong Kong chief executive Carrie Lam has dismissed concerns over the application of the policies, saying the territory wants only to target “illegal doxing”.
However, her reassurance might not have brought much comfort for international business. Lam likened the data privacy measures to the rollout of the national security law last year, which has radically altered the legal landscape of Hong Kong.
For international companies operating in Hong Kong, the measures touch on pervasive issues. How will the territory’s authorities apply laws? Will any action on privacy chime with common-law norms?
“In the past there was faith,” said the adviser to the tech’
I think the key being that in the past the people trusted the legal system but that confidence has been shaken over the past year.
LEX Tencent: private label looks at the benefit of taking Sogou private. ‘As a fully consolidated entity, the growth potential for Tencent/Sogou is significant. Alone, Sogou looks more vulnerable. Tencent’s decision to take it private makes sense. For many US-listed Chinese groups going private may be the safest option.’
Buoyant Temasek bullish on Chinese assets
An interesting read and makes the good point that ‘regulatory risk was not “unique to China”,’
It’s stance currently shows its largest exposure is currently to China it will be interesting to see whether that continues as China tightens control over businesses.
Rivals rush to cash in after crackdown on Didi Chuxing
An interesting read that is not encouraging for existing investors and highlights the fragile nature of the business model. Worth a read but it is difficult to see how the company is going to be able maintain the growth that it was telling IPO investors about.
Ultimate index inspires quest for investment ‘holy grail’
Benchmark provider MSCI seeks to capture performance of all trading from every sector.
An interesting read about the quest for an an ‘adaptive asset-allocation tool’ that would include all types of assets.
It concludes by noting ‘“It might be a grand unified theory in terms of the framework. But customisation will be essential, as one size will not fit all investors,” he said. “At the same time, it has to be simple.”’
See also LEX MSCI ultimate index: holy grail fail
Concludes ‘Investors would struggle to match the different risk profiles, home currencies, tax regimes, liquidity requirements — the list goes on. The concept of an ultimate index may have piqued the interest of money managers for decades. But given the chore of replication, any interest is academic.’
Digital currencies require EU-wide regulation, says French watchdog
An interesting read because it shows the different national attitudes to what is required. I think that an international body is going to be required because these are assets without borders.
Damien Hirst launches his own NFT ‘Currency’
The artist’s experimental new venture forces buyers to choose between physical and virtual work — and take a gamble. Jan Dalley reports
Worth a read as it explores what people value.
FT BIG READ. SOVEREIGN DEBT
Putting rights before profits
Activists are increasing pressure on asset managers to stop backing regimes that abuse their own citizens. But some investors worry that Russian, Saudi Arabian or Chinese bonds will become off-limits.
Worth a read as it considers what the impact of ESG could really be; depending on how far investors want to take it.