FT Thoughts & Asian update; Aircraft, Ships and Fund flows.

This and previous notes can be found at asianmarketsense.com and Substack ( Asian Market Sense )
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Asia markets at 1:15pm HK time

Australia 
Market opened higher and worked higher to 7,406 a new high as oil prices continued to rally and support from resources around midday. But sold down in the PM and the selling accelerated on news that China was releasing copper, aluminium and zine reserves to try and control price rises. Currently flat @ 7,380
Leaders Banks, oil stocks, and healthcare
Laggards Miners and information technology
Data
Lending Index May -0.06% vs +0.19% Apr revised from +0.2% (F/cast was +0.3%)
Japan 
Nikkei opened lower (29,306) after mixed pre market data but rallied to 29,434 in the first 40 minutes but then traded down into lunch. PM opened lower and initially traded sideways but then dipped lower. Currently -149pts (-0.5%) @ 29,292
Topix Similar trading patten but has remained in green. Opened 1,972, rallied to 1,983 and currently +1.5pts (+0.1%) @ 1,977
Data
Balance of Trade May ¥-187.1B vs ¥255.3B Apr (F/cast was ¥-78B)
Exports May +49.6% YoYvs +38% Apr (Consensus was 51.3%)
Imports May +27.9% vs +12.8% Apr (Consensus was 26.6%)
Machinery Orders Apr +6.5% YoY vs -2% Mar (F/cast was +7.6%)
Machinery Orders Apr +0.6% MoM vs +3.7% Mar (F/cast was +2.5%) 
S Korea
KDCA reported 545 new covid cases (+71 DoD) -VE
Kospi opened slightly higher and worked higher but saw resistance at 3,280 which it has tested a number of times. Currently +19pts (+0.6%) @ 3,277
Kosdaq dipped on the open to 995 but then rallied to 1,000 before reversing to 997 around 11am and then working better and again saw resistance at 1,000 and currently +2pts (+0.2%) @ 999.4
Taiwan 
Taiex opened opened lower (17,357) and then traded around flat for most of the session but sold down to17,275 around 12:35 but then rebounded currently -38pts (-0.2%)@ 17,354
China 
CSI 300 opened slightly lower and initially traded sideways for the first hour but unable to break above Tuesday’s closing level. Then sold down to 5,100 at lunchtime. PM opened flat and seeing further weakness. Announced releasing copper, aluminum and zinc reserves to try and contain rising prices. Suggests that exports remain the key driver for recovery. Prior to that sentiment weak with concerns over PBOC removing liquidity, defaults and international relations. As well as uncertainty about the economic data being released after market for the first time when its usually released either pre market or early in the session.
Foreign holding of U.S. government debt in April rose to USD7.07 trillion but China's holdings, on the other hand, slipped from USD1.1 trillion in March to USD1.096 trillion, as the country has already been reducing its U.S. treasury holdings for two months in a row.
HK 
Pre market opened @ 28,609 -29pts vs -27pts ADR’s then saw further margin call selling to 28,535 before rebounding to flat but unable to break above. Dropped back to traded around 28,580 before selling down to 28,530 before a small bounce into lunch. PM open flat but sold down on the China news and news that it was suspended its programme on senior banker quarantine.
Currently -144pts (-0.5%) @ 28,493
Chinese financials and E-commerce mixed. Chinese consumer names weak ahead of Chinese retail sales data.
ANGELALIGN (06699.HK) +140.69% settled the midday at $416.2, up 1.4 times against the listing price of $173, on volume of 13.45 million shares and turnover of $5.304 billion.
Europe
Futures indicate a slightly higher open FTSE +13 points at 7,183, DAX +13 points at 15,745, CAC 40 +6 points at 6,648 and Italy’s FTSE MIB +48 points at 25,756, according to IG. But early trading could be influenced by the China data due out a 3pm HK time
Data
EUROZONE 
Labour Cost Index, Wage Growth. 
UK 
Inflation Rate, Core Inflation Rate, PPI Core Output, PPI output, PPI Input, Retail Price Index, 
US Futures 
Opened Dow +17pts, S&P +0.06% and NDX +0.12% but have eased back to Dow and S&P flat and NDX +0.1%.
Focus on FOMC press conference. Other data due MBA Mortgage Applications and 30 yr Mortgage Rate, Import Prices, Export Prices, Housing Starts, Building Permits, EIA Oil Report.

On line
Big Tech critic Lina Khan to lead US competition regulator
Joe Biden appoints 32-year-old professor as chair of Federal Trade Commission. -VE for big tech as likely to pursue anti competitive activity.
Watch the ‘dot plot’ at the Fed meeting today
Forecasts for US interest rates could be taken as a sign of inflation concerns or complacency


PRINT
FRONT PAGE

Net proceeds
Berners-Lee auctions code the inventor of the world wide web to sell the source code as an NFT. The first time he has really profited from his invention; and even now he is going to give the proceeds to initiatives he supports.
Also Web inventor to auction original code
Sotheby’s sale will mark first time father of the internet can raise money from invention.
Interesting his latest project is designed to give individuals back control of their own personal data and avoiding ‘central control’.
‘He originally conceived the web as a collection of personal pages that link to each other, rather than being dominated by a handful of giant corporations. “It was supposed to be individually empowering,” he said.’
Worth a read.


EU bars 10 banks from recovery fund bond sale over past scandals
• Brussels’ biggest borrowing spree • Sanction for market rigging • Proof of reform required 
Bars: JPMorgan, Citigroup, Bank of America, Barclays, Natixis, Nomura, NatWest, UniCredit, Deutsche Bank and Crédit Agricole.
All of whom have been involved in various infringements. A good move by the EU to try and get financial institutions to impliment and adhere to best practices.
Interestingly it quotes a senior banker “There’s a delicate equilibrium in the relationship between issuers and primary dealers, and this risks upsetting that,” said a senior banker at one of the lenders barred from syndicated deals. “These issues they are bringing up are from a long time ago, and they have been settled.”
I think that attitude is what encourages bad practice. I also think the banks will quickly adapt and the previous ‘delicate equilibrium’ to ensure that clients get the products they want.

PwC to add 100,000 staff in five years as ESG consultancy services bear fruit.
ESG is big business, from advice to audit.
It notes ‘Accounting firms are also providing ESG training to auditors as the industry prepares for increased regulation in areas such as climate-related disclosures by companies. As regulators discuss standardised ESG disclosures akin to the international accounting rules agreed decades ago, all PwC staff needed at least “a baseline understanding” of ESG, said Tim Ryan, US chair.’
An interesting read and something that no doubt will become increasingly important. One wonders as the costs associated with ESG grow whether investors will be so keen to embrace them?

INSIDE
Aircraft makers
Airbus-Boeing deal eases tariffs threat on both sides of Atlantic
Working group set up to thrash out understanding on past and future subsidies. Also EU and US end aviation dispute after 17 years
An interesting read that paves the way to resolving some other tariffs between the two. But I think it is worth noting that with th most important aspect was the realisation that China was a threat to both of them in the global market. They have laid their differences aside in order to be able to address that. It is less clear whether there will be a similar focus on some of the other disputes.
More importantly will be Biden’s view to appointing new judges to the WTO which already has a huge backlog of cases. If he and others are keen on the ‘rules based system’ them getting the WHO back working properly is key; as is reforming a number of its practices to make them fit for use in today’s world.
This five year truce is a very good start.
It will be interesting to see if China intends to support the WTO going forward, which would represent an indication to adhere to a rules bases system.

Olympics will need bailout if games go ahead without spectators
‘Recent budgets show the Tokyo 2020 organisers are still assuming full stadiums. Having already spent the billions of yen raised from ticket sales, a new subsidy from taxpayers would be the only way to finance refunds, according to a Financial Times analysis of organising committee accounts.’
Another worrying aspect of the Tokyo Olympics; which could impact badly on the sponsors because they have given away tickets in marketing events. If their clients cannot use the tickets they could face a backlash.
Read also Sponsors’ hopes of Olympic-size marketing gains put to the torch

India woes weaken alliance’s anti-China drive
New Delhi’s disarray over jab production gives Beijing an opportunity to exploit.
Looks at how the recent covid resurgence in India has undermined hopes that it might counter the influence from China in the region. It starts ‘India’s catastrophic Covid-19 wave has not only battered its ambitions to become the “pharmacy of the world”, but it has also undermined a US plan for New Delhi to play a leading role in countering Chinese influence in the Indo-Pacific region.’
‘But India’s crisis and subsequent vaccine export ban have overshadowed the quartet’s first attempt to prove it can provide practical help to the region and is not just an anti-China military alliance. Instead, India’s failure has created an opportunity that China is exploiting.’
Specifcially with India’s neighbours like; Nepal, Bangladesh, Bhutan and Sri Lanka, where New Delhi was vying with China for influence and now its reputation is in tatters vs China’s.

It concludes ‘But the deaths of 21 Indian soldiers in a clash with Chinese troops along their shared border cemented New Delhi’s commitment to the Quad for support.
“This is a country that has shown the will to shed blood to challenge China,” Paliwal said. “Despite all its problems and dysfunction, that is a very powerful signal . . . Every ally will continue hoping for India to deliver.”’

Beijing flies record number of military jets close to Taiwan
The amount of resourses being used gives an indication about how annoyed Beijing is. But the increased international support for Taiwan will present Beijing a major problem and it is increasingly getting backlash from Netizens who are feeling frustrated that the government is not taking more action to bring Taiwan into being part of China. That is the problem of running a narrative that isn’t completely true. Because the people of China have not been told the truth they cannot understand why Taiwan does not want to be of China.

Shipping seeks a sea change over emissions
Heavily polluting industry has taken first step to cut carbon but must go much further to satisfy climate demands.
The key point of the article seems to be that the International Maritime Organization (IMO), the supposedly powerful UN body that regulates shipping is having trouble getting a meaningful agreement on the steps required to make significant carbon dioxide emissions.
One of the biggest issues is the adoption of clean fuel ‘because clean fuels such as green hydrogen, ammonia or methanol are not widely available and presently cost far more than fossil fuels.’
That has been one of the reasons the sector has avoided its normal over ordering of ships during good times. Owners are not prepeared to commit to ordering new ships when they are uncertain of the type of engine to fit.
It also says ‘Developing countries, particularly in Latin America, are deeply concerned about a hit to their trade-dependent growth and higher costs of basic goods caused by tighter environmental rules. China and Russia remain major opponents of meaningful action, European delegates said.’
It also says that ‘An unlikely pair of candidates — the Marshall Islands and the Solomon Islands — have put forward the only proposal for a meaningful financial incentive to decarbonise shipping at $100 per CO2 tonne. The Marshall Islands is emblematic of the tensions. Its islands are mostly low-lying and at risk from global warming. At the same time, it has a large shipping registry and has typically aligned itself with the industry interests.’
There are obviously a huge number of vested interests hence the difficulty in getting an agreement.
Worth a read.

China approves record outflows from local investors to cool renminbi rally.
‘A cumulative $147bn of approvals have been added to the nation’s qualified domestic institutional investor scheme, which allows investors to access assets outside mainland China through banks and other institutions.’
It seems to be aimed at reducing the strength of the currency which suggests that exports are still viewed as the main driver of the economic recovery for the country and that its hopes of domestic consumption becoming a driver are still not working and suggests that todays Retail Sales data may be weak.
News just breaking on bloomberg has China releasing copper reserves along with aluminium and zinc along with other soft and commodities to try and contain price pressures and domestic inflation and probably global inflation too.

Cross asset. Volatility
Fed assurances restore calm but stir complacency fears
Wait-and-see approach points to trouble if inflation rips ahead of expectations.
Suggests that markets are in ‘deep slumber’ after the inflation fears seen earlier in the year. Personally I do not think that is the case. I think the markets have seen some re-positioning and are, like the Fed, waiting to see what the data reveals. I doubt it is complacency but rather the preparation of alternative options depending on the data. The big problem I think is not complacency but the fact that so many funds are position the same way. Which is likely to result in ‘a rush for the door’ when the data indicates the need to change. The problem being that no one wants to underperform by being cautious; especially when markets are trading at highs. ‘“Markets are in a wait-and-see mode, it is not about what will happen next but about when. We do not know then when, and if you move too early in the game you will get beaten up.”’

The other big issue is the amount of money tied up in EFT’s and again a shift in thinking could have a exponential impact on markets when Tech ETFs are sold and value ones bought.

Hedge funds poised to expand in digital currencies despite risk of tighter rules.
A recent survey shows that hedge fund CIO’s are intending to hold around 7.2% of assets in cryptocurrencies. Key I think is that crypto provides a good store of worth in the face of the financial devaluation of fiat money. The biggest loser is likely to be gold.
Some remain wary but the crypto that is linked to blockchain definitely has a future but some of the more spirious may prove to be just scams. But in all fields of investing there are invariable some scams; everyone remembers Enron. Worth a read.

Oil likely to hit $100 a barrel, say top traders
Traders, investor and producers are expecting the current increase in oil prices to continue to trend higher. I think that is quite likely even with OPEC having scope to increase production. One of the key points for oil will not however be the demand but there is likely to be increasing focus on the long term reserves which are becoming depleted at a time when there are increased environmental restrictions on new drilling.
Key to me is the negative impact this will have on airlines as air travel resumes. Their load numbers are likely to take time to recover but their costs will be pushing higher.

Outlook is bright for capital-heavy business models
By Ian Harnett co-founder and chief investment strategist at Absolute Strategy Research.
Sets out that investment rationale is going to change from capital light to capital intensive.
Investment light relies on globalisation and IT; so that IP and intangible assets are the drivers. ‘Platform companies’ that connect customers to products with easy scalability.
But that is changing; monetary policy is now focusing on ‘full employment and inclusion ahead of inflation, while fiscal policy is increasingly expansionary.’ Which could result in ‘the kind of mix of growth and inflation seen in the 1950s and 1960s.’
'The under-investment in capital-light businesses will be exposed by such rapid demand growth, resulting in increased investment as companies seek to rebuild capacity. However, these short-term pressures will only accelerate the longer-run regime shift towards capital-heavy business models.'
He sets out four structural themes
1. Reshoring
2. A shift from investment in information to infrastructure.
3. The need to develop climate-transition technologies
4. Investment in technologies needed to secure geopolitical leadership.
He notes that ‘China’s “Military Civil Fusion” programme seeks to deliver the technological advances needed to secure geopolitical leadership. Beijing’s targets range from reducing technology gaps in aviation engines and high-end semiconductors, to building leadership in quantum computing. If the US is to keep pace with China, it will need to channel capital into these areas.’
He conlcudes ‘The shift to capex-heavy business models will initially be driven by those sectors starved of capital in the past 20 years as they benefit from reshoring and higher infrastructure spending. But longer term it could be the nascent technologies needed for the climate transition and geopolitical “proxy wars” that deliver better returns to investors from capital-heavy companies.’
A good read, I think the transition is likely to take time but has probably already started.

FT BIG READ. US-RUSSIA RELATIONS
A new era of information warfare
As Joe Biden prepares to meet Vladimir Putin for the first time as president, Washington believes Moscow has stepped up its campaign to sow distrust in US democracy, including through vaccine disinformation.
An interesting read. It is interesting to see, I think China adopting some of the same tactics.

Read also Editorial
A US-Russia summit of meagre expectations
Biden should expose the hollowness of Putin’s position.
Also Opinion A summit with Putin is a chance to reaffirm American resolve by Andrew Weiss vice-president for studies at the Carnegie Endowment for International Peace and a former director for Russian, Ukrainian and Eurasian affairs on the US National Security Council staff

OPINION
Economics
Spurn the false promise of protectionism
The US economy suffers from poor labour performance but this is not due to global trade. by Martin Wolf
Concludes
‘Yes, there is a case for maintaining technological leadership in vital sectors and for security of supply of essential products. But these concerns need to be defined and addressed with precision. Above all, in economic competition with China, democratic stability and investment in people, infrastructure and innovation will be the decisive factors.

Meanwhile, the continuation of trade across the world will not only cement mutual interdependence but underpin prosperity, especially for poorer countries, as the World Bank’s excellent World Development Report 2020, on supply chains and development, stresses. This is also compatible with tackling climate change, under the right globally agreed policies. The G7 is correct that the world trading system needs reform. But this must not mean destruction. We should not throw liberal trade away for the wrong reasons and in the wrong way.’