Asia @1:15pm Hong Kong time
Market opened lower and is trading sideways in a tight range 7,300 - 7,264. Weakness in Banks and Healthcare but strength in Iron ore miners and Tech with Afterpay +7% launched a digital card strategy that opens itself to US retail use. The rise in covid cases in Sydney also weighing on the market.
PPI Services May +1.5% YoY vs 1.1% Apr revised from1% (F/cast was +1.5%). At lunch Supermarket sales expected.
Nikkei opened lower but worked better through the morning to 28,920 at lunch. PM is trading around flat.
Topix traded in a similar patten currently -2pts (-0.1%) 2 1,947
Tomorrow we get Tokyo CPI data.
Pre market Consumer Confidence was stronger. BoK released its inflation target report and said that it expected 2% inflation next year and orderly normalisation to start this year .
Kospi opened higher support at 3,280 and resistance around the 3,290 level. Currently +11pts (+0.3%) @ 3,288
Kosdaq sold down through the morning to 1,010 but worked hgiher from midday, PM resistance around 1,015, currently -3pts (-0.3%) @ 1,014
Taiex opened higher on good Industrial data and despite weak Retail sales after an initial dip rallied to 17,400 level which was resistance and tested a couple of times before easing back to 17,370 around 11:15am. Then worked better to trade around 17,400.
After market M2 Money Supply due.
PBoC resumed open market operations (first since March), net injection of 20bn Yuan
CSI 300 opened higher but sold down to 5,130 in early trades and then traded sideways in a tight range 5,130/5,150. US banning some solar elements from Xijiang raising concerns about further sanctions
Pre market opened @ 28,866 +49pts vs +82pts ADR’s Macau names and Solar weak but E-Commerce, Tech and Auto +VE But saw resistance approaching 29,000 in early trades. HSI then sold down to traded around flat.
Futures indicate a higher open but BoE in focus along with US bnk stress tests. FTSE +6 points at 7,086, DAX +23 points at 15,515, CAC 40 +16 points at 6,566 and Italy’s FTSE MIB +85 points at 25,033, according to IG.
EUROZONE ECB General Council Meeting
GERMANY Ifo Business Climate, Current Conditions and Expectations
FRANCE Business Confidence and Climate Indicator
UK BoE Interest Rate Decision, MPC Meeting Minutes, BoE QE. After Market Consumer Confidence
Opened in Asia; Dow +44pts, S%P+0.05% and NDX +0.1% and have improved to Dow +100pts, S&P & NDX just positive.
Ahead Durable Goods, GDP Price Index, Corporate Profits, Goods Trade Balance, Wholesale Inventories, Initial Claims, 4 week Average Claims, Continuing Claims, Core PCE Prices and PCE Prices, EIA Natural Gas Report, Kansas Fed Manufacturing Index. Fed Bank Stress Test Results
NY Fed Treasury Purchases 22.5 - 30yrs
FED Speakers Bostic, Williams and Bullard
Earnings: Accenture, Darden, Rite Aid, Nike, FedEx, Blackberry
Tencent takes quiet path through China’s tech turbulence
Chief Pony Ma’s low profile and close attention to government relations have put group in good position
US says Chinese scientists asked for removal of virus records from database
Deletion from archive suggests ‘deliberate obfuscation’ over Covid’s origins, expert says
Chinese port company warns Australian review raises sovereign risk
Landbridge says investors will be scared off but hawks warn foreign control in Darwin is dangerous
FT Print Front Page
Berlin and Paris propose reset for EU relations with Moscow
• Summit with Putin mooted • Biden sets template • Move likely to alarm Baltic states.
The move by Merkel seems to have upset other EU members. An interesting read as it reveals the dilemma in Europe about how to interact with Russia.
HMS Defender denial UK rebuts Russian claims over warning shots
The UK has denied claims by Russia that its forces fired warning shots at British destroyer HMS Defender off the coast of Crimea yesterday. The Russian defence ministry said a coastguard ship fired shots and an aircraft dropped four bombs in the Defender’s path.
Inside the detail Russia claims it fired shots at UK destroyer
Britain’s Ministry of Defence denies warship was targeted off Crimea
Morgan Stanley rules no vaccination, no entry to NY office for staff or clients.
Highlights the variety of responses to the current situation now that effective vaccines are widely available. To me it makes sense and bodes well for CBD property locations. Whilst many sectors and some functions see a radical re-orientation of working circumstance like ‘work from home’ many large companies are likely to return to the old model.
Fed leadership seeks to steady policy message after gyrations
Looks at recent statements from Fed speakers following Powell’s recent comments.
Key being that the Fed remains data dependent but if that recovery is stronger than expected then that would being forward tapering and interest rate hikes. That said they still believe current signs of inflation to be temporary. I think they are acknowledging what the market was seeing and wanted to demonstrate that they are aware of the reality of what people are seeing in their everyday life.
Read also Business rebound in Europe and US fuels inflation worries Looks at yesterday’s flash PMI data which revealed that businesses are facing shortages of both materials and staff. To me that suggests that wage inflation (which I think is what the Fed is focused on) could be stronger than being currently factored in. More importantly is the fear that it leads to wage inflation expectations rising. That is the danger and would be difficult for the Fed to reverse.
Hong Kong’s pro-democracy Apple Daily closes
Newspaper’s assets frozen and journalists arrested after offices raided.
Regardless of what the Hong Kong administration says, many see this negative for press freedom in the SAR. The fact that under the new law it was able to freeze assets and force the business to close has frightening implications for all businesses in Hong Kong.
The fact that this has all happened on the basis of accusations and without any opportunity for defence shows how the new law undermines the basis of the Basic Law in Hong Kong.
Also worrying people is the vaguely worded law; when ask about how journalists could avoid prosecution Carrie Lam avoid giving a direct answer.
It concludes ‘Several Apple Daily reporters had quit the paper this week following the arrests. “What have we done wrong? We’re just doing our parts to protect the precious values of Hong Kong,” said one journalist who resigned just before the decision to close the paper was announced. “It feels like the sinking of the Titanic.”’
Also read the Editorial Apple Daily case is assault on Hong Kong’s freedoms City’s attractions for business over mainland China being stripped away.
It says ‘The Hong Kong people and authorities will care deeply about the implications for the city. Beijing cares little.’ I would question whether the authorities in Hong Kong care, for them it is more important to be seen to being implementing Beijing’s requests.
A worrying read.
Judge ends bid for top court role after Beijing loyalists object
Intervention against wife of former chief justice viewed as attack on judiciary’s neutrality.
‘Pro-Beijing legislators have successfully intervened in a senior judicial appointment in Hong Kong, in what lawyers said was the latest attack on the city’s cherished independent legal system.’
In essence; Judge Maria Yuen Ka-ning, the wife of Geoffrey Ma Tao-Ii, the city’s former chief judge, was due to be named the next permanent judge at the Hong Kong Court of Appeals but she withdrew her candidacy after lawmakers raised concerns about the appointment; arguing that Yuen could be influenced by her husband, whom pro-Beijing groups have criticized in the past after defending the neutrality of the Hong Kong judiciary.
The key worry now is that China will be able to make significant changes to Hong Kong’s common law legal system. That would worry many international companies, undermining the reason for having a regional headquarters in the city. It would also make Singapore significantly more attractive.
A worrying read.
Biden pushes for meetings with senior Xi officials
Comes after 5 months in office and having ensured that the US has significant allies onside. The other point to note is that it is the US driving the agenda.
Currently it reports that ‘the US and China are discussing a possible meeting between Antony Blinken, secretary of state, and Chinese foreign minister Wang Yi at a G20 meeting in Italy next week’.
Also being considered is the possibility of Blinken or Sullivan traveling to China ahead of a Biden/Xi meeting in October at the G20 Leaders meeting.
The developments will be closely watched coming against the background of China continuing to ‘ignore a Pentagon request for Lloyd Austin, defence secretary, to speak to General Xu Qiliang, the top Chinese military officer.’
There are obviously going to be a lot of diplomatic games going on but I think China has more to lose on the international stage if it shuns the US overtures.
China bolsters ties with Myanmar junta
Reports that relations are normalising despite the continues crackdown by the junta and I think a clear indication that China has supported the military throughout. It also implies that the junta will be in place for many years to come.
Companies & Markets
New Lego model Toymaker’s latest brick takes big step towards eliminating oil-based plastics
An interesting read and shows that savings and changes away from direct petrochems are possible.
SoftBank founder grilled by investors
Greensill and Katerra woes leave Son defending governance structure.
Looks at the Softbank AGM yesterday. An interesting read and highlighted that governance is increasingly coming under scrutiny and I would expect that to continue in the light of erratic performance. No new buybacks and Son refuted that was the only way to raise the share price. He also made clear that at present he has no intention in standing down from running the company. ‘He has previously said he would hand over to the next generation in his 60s. “While I am mostly focused on the Vision Fund operations, finding a successor is one of my top priorities,” Son said.’
A slight worry being that with a lot of the operation revolving around him without him things unravel.
Central banks step up fight with bitcoin and rivals
Looks at the latest report from the Bank for International Settlements; which sets out ‘that digital tokens such as bit-coin have few redeeming features and “work against the public good”.’ It also ‘dismissed stablecoins — a link between crypto and conventional assets — as an “appendage” to traditional money.’ It does however support Central Bank digital currencies.
An interesting read because it shows both how opposed to cryptos Central banks are and also how far behind the curve they are in trying to contain them.
I think the fact that crypto has speeded up the acceptance of digital is good. I also think that some crypto’s will survive as the digital gold. It mentions the cost of crypto and waste of energy. I wonder if you did an audit of hold fiat currency, including printing,disposal, storage, statements and accounting what the real energy difference is?
Worth a read. See also the Editorial
A blueprint for central bank digital currencies
Threats to privacy come from the state as well as tech companies which looks at the trade off between privacy and opportunity for illegal use. A good read. Along with Why we shouldn’t listen to the crypto ‘experts’ Notebook by Jemima Kelly
South Korea seizes digital currency assets in tax evasion crackdown
Looks at how crypto assets have been used to hide assets. An interesting read. It also illustrates that many people are using crypto as a store of value rather than a means of commerce.
Coking coal price surge defies Beijing’s attempts to ease overheating trading.
An interesting read that underlines the difficulties China has in controlling prices, especially since it decided to ban coal imports from Australia. The fact that lifting that ban has not been mentioned is a sign of the political pride in China.
Also Lex Coal: burning bright ‘Despite producing 4bn tonnes annually, China’s net coal imports have nearly doubled over the past decade to 5 per cent of the total.
Meanwhile, capital spending for the top global 13 miners has halved since 2011 to around $13bn, according to Liberum. This at a time when few will lend to the industry.
Do not bury thermal coal just yet. With little forecast expansion of supply, even slowing demand will support its price.’
FT BIG READ. JAPANESE BUSINESS
How ‘dark arts’ turned investors against Toshiba
Tomorrow’s AGM could see the whole board dismissed as anger mounts over collusion between senior managers in the group and government. The repercussions are likely to be felt across corporate Japan.
A good read ahead of the AGM, whilst it notes that for several reasons Toshiba is a special case company there are a lot of issues which are common to much of corporate Japan; the key one being having a board that works for shareholders and recognises that the board is there to serve them; rather than the other way around.
Amazon lights fire under wage expectations
Ecommerce group’s $15 an hour floor emerges as de facto US standard, piling pressure on ‘mom and pop’ employers.
Key being that $15 is twice the federal minimum wage. Worth a read because it has effectively set the base and in some cases pays even more which is likely to feed into wage expectations which is what the Fed is watching and hoping to be able to control.
Downward spiral in liquidity is leading to more shocks
By Rishabh Bhandari a senior portfolio manager at Capstone Investment Advisors
Worth a read because as he says the flip side of liquidity is volatility and the impact that can have on the wider market.
‘To navigate this landscape successfully, investors must first recognise these liquidity risks. Second, they must understand that in this new environment, investor positioning — whether speculative, passive or systematic — and technical factors are more important in determining short-term moves in asset prices than market fundamentals.
Above all, given that liquidity and volatility are two sides of the same coin, it is more important than ever to understand and manage portfolio volatility.
For investors who want to “play defense” to avoid making tough or bad decisions during potentially brief periods of turbulence, hedging volatility with financial instruments is critical.’
For investors who want to “play offense”, more frequent bursts of volatility provide opportunities for returns during stress episodes.