FT Thoughts & Mkts Update China vs Bitcoin, tech and foreign reporting

This and previous notes can be found at asianmarketsense.com and Substack ( Asian Market Sense )
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Asian markets @ 2:15pm
Market sold off heavily initially.

Australia 
ASX 200 market opened significantly lower and then drifted lower through the morning to the low of 7,217 around noon. It then traded sideways with resistance at 7,250 and support at 7,225. Laggards were Financials, Energy and Industrial’s. Miners were mixed with Gold miners seeing some interest.
CBA -5% despite news it was selling its home and motor insurance business to Hollard Group for $625m
Data
Retail Sales May +0.1% vs +1.1% Apr (F/cast was +0.5%)
Japan 
Nikkei opened about 460pts lower and proceeded to lose a further 500 points through the morning. PM opened lower and trading sideways with resistance at 28,000 and support 27,875
Topix traded in a similar pattern; opened 1,917 was 1,897 at lunch, just off the morning lows. PM opened lower with resistance at 1,900 and support 1,890
S Korea 
Kospi opened lower, first support was 3,240 and traded sideways until around 10:30am when it sold down to 3,230 level and then traded around there until around 1pm. Then worked slightly better but resistance at 3,240.
Kosdaq similar pattern support around 1,008 and resistance 1,014. In the afternoon the upside was capped at 1,011.
Data
Exports 20 days Jun +29.5% YoY vs 53.3% May
Imports 20 days Jun +29.1% YoY vs 36.0% May
Robust demand for chips, autos and petroleum products
KDCA reported 357 new covid cases (317 local) vs 429 Sunday.
Taiwan 
Taiex opened lower and trended down to 17,023 around 11:30am. Then traded sideways with resistance at 17,100.
Closed -2.56pts (-1.48%) @ 17,063 T/O was US418.27b ($19.24bn Friday).
Heavy rain forecast +VE for alleviating the recent water shortage and good for tech manufacturers
Data due after market Export Orders
China 
CSI 300 opened lower despite PBoC left Prime Loan Rates unchanged but market sold down (news of tightening social distancing in Shenzhen on covid concerns) to 5,060 initially before rebounding and rallying to 5,120 but unable to hold and sold down to 5,072 at lunch. PM resistance 5,080 and support around 5,070. Team China working hard.
Data
Loan Prime Rate unchanged as expected 1 yr @ 3.85% and 5 yr @ 4.65%
HK 
Pre market opened @ 28,501 -300pts vs -247pts ADR’s 
Initial rangebound trading 28,500/28,400 for the first 30 mins, then broke higher to 28,600 but unable to break higher and consolidated back to 28,400 at lunch. PM sold down to 28,310 level and trading sideways. E-Commerce and Chinese Financials leading the declines. Evergrande rebounded after recent weakness and Auto’s also +VE
Europe 
No data due Futures indicate FTSE -51 points @ 6,955, DAX -141 points @ 15,290, CAC 40 -34 points @ 6,528 and Italy’s FTSE MIB -341 points at 24,722, according to IG.
US Futures
Opened Dow -66pts, S&P -0.2% and Nasdaq -0.1%. Currently Dow -207pts, S&P and NDX also -VE
Data due Chicago Fed National Activity.
More Fed speakers this week; today Bullard and Kaplan likely to give more insight into the Fed’s tilt. It was Bullard on Friday who spooked markets so it will be interesting to see if he looks to reassure the markets about tightening. 

FT PRINT
Front Page

Iran nuclear pact at stake

Talks ended without a decision as Iran elects Ebrahim Raisi, a conservative cleric and judiciary chief, as the country’s president. But the turnout was low (48.8%) with many upset with so many candidates being barred from entry.
See inside Iran’s hardliners tighten their grip with Raisi election victory Reformists’ hopes hit by impact of sanctions and voter disillusionment


Chinese provinces tighten screws on power-hungry bitcoin miners
• Shockwaves rattle sector • Sichuan operators ordered to halt • Beijing emissions push
A further push to clamp down on mining in China. Comes as Central banks warn about risk that crypto currencies could impact the fiat banking system’s stability as many turn to crypto as a store of value rather that gold.
The article mentions the environmental impact too due to its high use of power. Worth noting that whilst many are highlighting the cost of mining there are environmental costs in holding other assets too.
The articles focuses on the expectation that many of the miners will re-locate out of China, in search of cheap power.
China has been a source of cheap power but is now clamping down as it seeks to meet the it’s emissions targets. It has also been hit by low rainfall hurting its ability to generate hydro.

China watchdogs sink their teeth into Big Tech
Little-used competition laws are suddenly being enforced to bring powerful sector into line.
Key points being that the change of tack but the government was a surprise to everyone. The Chinese regulators have a lot more power to collect evidence from those involved and that they seem to be following the example of US and European regulators, in looking to protect clients.
The clamp down comes as the companies have made record profits during the clampdowns but the actually delivery drivers and others have not benefited.
It also mentions how the government has changed from allowing these businesses to grow for their own benefit to being more directed by government.
‘Beijing also wants its tech companies to carry out foundational research, to help it in the long-term tech decoupling with the US, rather than just to focus on attracting as many consumers as possible to their platforms.’
One problem the government has is that the firms have better resources than the government; State Administration of Market Regulation (SAMR) only has a staff of around 50. At the same time the tech companies have been hiring lawyers and ex government staff to protect themselves and to court public opinion. Which could further annoy the Beijing.
It concludes that ‘Investors remain confident in backing the current industry leaders. “These companies are leaders because they have built steep competitive moats. Their platforms still have significant centralising power, and they will continue to be the leaders,” added Cai, the venture capitalist.’
Whilst I think that is true in the short term and I think that China wants to remain a global leader in the tech space the key is that the government wants to be able to control it and it probably wants to be making more money out of it than it is currently doing!

COMPANIES & MARKETS
Tumbling timber Economists eye inflation clues as Americans swap DIY for eating out
Worth a read. A worry for the DIY stores like Lowe’s, Home Depot etc and it is also -VE for Techtronics (669 HK) which hit HK$153.40 in early May and last week failed to regain the HK$140 level. I like the stock but would expect it to trend lower in the short term lacking new drivers. Worth
taking some money off the table or considering as a short.
The article suggest that some think the high price of lumber has meant some are delaying projects not abandoning them.
Key is that increasing the supply of lumber is a slow process and whilst the mills may have capacity there is no way to speed up the length of time it takes trees to grow. So it is a bottleneck.
Even with the recent pull back timber prices remain elevated due to the house building demand in the US.
Key for me is that it will contribute to inflation and whilst it is a bottleneck but one that could take years to unclog.

Market Questions. Inflation fears
Investors await clues on BoE’s rates direction
How will the Bank of England react to return of inflation?
A key fact is that with Chief Economist Andy Haldane leaving, having been the lone dissenter of the current policy whether he can bring other members around to his way of thinking before he leaves.

Will pressure build on the Fed?
Looks ahead to the PCE data to be released on Friday.
Key for me is that Powell remains data dependent meaning that they wait to see it rather than make decisions ahead of the data. He also stressed in the press conference the difficulty in making decisions on one months data.

Can China control metal prices?
Looks at how commodities dropped last week as China said it would release some of its reserves in and effort to control prices and more importantly control the feed through to domestic inflation.
Key is that China is no longer the price setter so whilst influential it is unable to dominate prices. Equally in releasing reserves; it has not said how much it would release and it will be sold in China so unlikely to have a significant impact on global rates.

FT BIG READ. CHINESE POLITICS
State propaganda and soft power
China Global Television Network is Beijing’s chief means of spreading its ‘perspective’ around the world. But insiders complain of constant political interference, which has led it to fall foul of western regulators.
An interesting read, it seeks to balance what in its view is the international bias against the communist party line. That highlights the trouble when you are only told one side of the story.
Also interesting to note that the Chinese are focusing more on what goes out on-line as they know that is more difficult for western authorities to monitor.
China Global Television Network is Beijing’s chief means of spreading its ‘perspective’ around the world. But insiders complain of constant political interference, which has led it to fall foul of western regulators.

Opinion
China links pose a threat to UK academic freedom By Tom Tugendhat Conservative MP for Tonbridge and Malling and chair of the Foreign Affairs Select Committee.

An interesting article about financial dependence and the political pressures that can come with that. A good read. he concludes
‘Universities also need somewhere to turn for better advice. The government should ensure that its new Research Collaboration Advice Team is a well-resourced body that acts as a trusted source of advice about what kinds of partnerships may raise human rights or economic security concerns.
Alongside this, the government must work with the sector to create diversified revenue models that reduce financial dependence on overseas students from one country.
Through the past decade of internationalisation, universities have become foreign policy actors in their own right. They make active choices about who to partner with, and where to focus international recruitment. This cannot come at the cost of the values and academic freedom of open societies.’
Academic freedom along with individual freedoms are crucial.



Obituary
Promoter of tolerance with a passion for human rights
Edward Mortimer Journalist, author, academic, UN speech writer 1943-2021
Worth a read, a historian grounded in reality with a passion for the defence of human rights.


Santander set to challenge Wall St with European investment banking push
Comes after 40 years of building its consumer banking but with low interest rates hurting profits it is looking to new avenues and to take advantage of the ‘growing unease about the dominance of US lenders in the region’.
It notes ‘“In Europe it is fair to say that we started being probably a tier two to tier three [investment bank]”, said José María Linares, who was recruited from JPMorgan to expand Santander’s corporate and investment banking division. “The ambition is to be one of the leading European banks.”’
Worth noting that they hired someone who had worked for a US bank to build the business.
It also mentions how BNP is also looking to expand its corporate and investment banking.
It concludes ‘Rivals are taking Santander’s efforts seriously, but caution that adding scale is easier said than done. “You don’t become top three just because you decide you are going to,” said the head of investment banking at a European rival.’

Inside
Digital euro ‘would combat unstable coins’
ECB’s plan is the way to better protect consumer privacy, Panetta says.
Key I think it it interesting that so many Central banks are now researching digital. I think a key driver has been concerns about how China has embraced the concept and could potentially become a dominant player as it has in 5G.
Interestingly the commercial banks worry about the impact of digital currencies on their deposits, especially in a time of crisis.
It also mentiones ‘It could also crowd out cash, some critics have argued; more than half of German households surveyed recently by the Bundesbank expressed scepticism about a digital euro and frequent users of cash were the most dubious.’

It could make significant changes to the system and would allow central banks to target money to individuals more effectively. It also notes the need for the digital currencies to be interoperable and so like 5G there will need to be an international basis/committee to control. China no doubt will be looking to dominate that as it has on 5G and it is the realisation of that I think that has prompted the Fed to act.

It also comments that the ECB is looking at completing ‘its oversight framework for private digital currencies and crypto asset providers by the end of this year,’. This to me should be an area where there is an international body to oversee the rules in order to protect investors.