Asia Closed in the Green, French inflation weaker now we await US PCE & other data. Thoughts on China, Property & Gold. Happy Easter!
Markets finished Nikkei 225 up 0.5%, Kospi up 0.03%, Kosdaq -0.5% , Taiex up 0.73%, CSI300 up 0.47%, Shenzhen Comp +0.62%, Shanghai Comp up 1.01%
Asia
Last trading day of the month and quarter and a big data dump from Japan pre open. Other markets open in Asian are S Korea, Taiwan and China. Also today we get Chinese Current Account and over the weekend key PMI data for China on Sunday. Chinese equities rallied Thursday morning on reports that President Xi Jinping was urging the central bank to buy government bonds as part of a broader stimulus push; raising hopes of more stimulus ahead.
Chinese developers remain a focus after Country Garden, China's largest private developer, said it will delay its 2023 results due to "continuous volatility" in what is an "increasingly complex" sector. We also saw weaker 2023 earnings from a number of the private developers.
Chinese Tech may also see pressure today on rumours the United States is drawing up a list of advanced Chinese chipmaking factories barred from receiving key tools; to make it easier for companies to stem technology flows into China. The list could be released in the next couple of months, one of the people said.
BUT main focus for most today will be the US PCE data out tonight in the US.
Trading volumes to be light with US markets closed along with Hong Kong, Australia and most of Europe; so trading mainly muted but with the potential for exponential moves due to the lack of volumes.
The expectation of light volumes could prompt the Japanese authorities to step in on the Yen but I hope they don’t and allow market forces to work.
Month and Quarter end repositioning for some; talked of selling of equities and switching to bonds to bring portfolios into balance. For Japan tomorrow will be the last day for the financial year.
Global smartphone shipments are expected to rebound 3% this year as easing inflation aids a demand recovery in emerging markets and the integration of generative AI attracts buyers to premium devices, a report by Counterpoint Research said on Thursday.
Global shipments had declined more than 4% last year earlier data from the research firm showed, as consumers tightened their purse strings in an uncertain economy. Emerging markets such as India, the Middle East and Africa are seen to be major growth drivers for the smartphone market, especially the budget-economy segment. +VE for smart phone supply chain.
The Boao Forum for Asia Research Institute started on Tuesday; under the theme "Asia and the World: Common Challenges, Shared Responsibilities”, finishes Friday.
Not good news for Hong Kong but Hotel bookings in Zhuhai have soared for the upcoming Easter holiday, with over half of them coming from Hong Kongers, said China Travel International Investment Hong Kong (0308) at its earnings briefing. T
Sam BankmanFried sentensed to 25 yrs in prison
Housekeeping
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At ERI-C this week there was a free Mifid compliant webinar;
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Russell Napier’s latest Solid Ground Newsletter “The BOJ Just Announced Easier Monetary Policy & Gets One Step Closer to Financial Repression: Global Implications & Problems for The Fifth Republic”.
Sean Maher of ENTEXT Economics & Research looks at Argentinian Shock Therapy, Micon Gatecrashes HBM, AI Robots and Coding Agents
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There are lots more contributors on the ERIC platform; many with free trails so let know if you have interest.
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A Three Body Problem - for US Politics. Both Biden and Trump have ’their problems’ is there a third option? RFK jnr raises an intriguing possibility of a contingent Election in the US, with the new House of Representatives picking the President. Smart analysts like Dr Pippa Malmgrem are starting to talk about it, while the betting markets are also starting to move. The financial markets? Not yet.
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MARKET’s on Friday
New Zealand
NZX 50 closed Friday and Monday; re-opens Tuesday
No Data due
Australia
ASX200 closed Friday and Monday, re-opens Tuesday.
After market Thursday China announced dropping the tariffs on Australian wine. Treasury Wine Estates (TWE.AX) will resume the distribution of some of its products in China, it said on Thursday.
No Data due
Japan
Nikkei opened up 59 pts vs 185pts the Futures were indicating; after disappointing Industrial production numbers, slightly weaker than expected Tokyo inflation data and rising unemployment. But strong retail numbers helped. Market tested 40,400 a couple of times in the first 30 mins but failed to break out. Consolidated back to 40,300 for and tested the support a couple of time and then worked higher into lunch; up 299pts 0.74% at 40, 467.
PM market opened lower about rallied late afternoon to 40,522 but then sold down to close up 201pts 0.5% at 40,369
Yen still trading 151.3 level
Today is the last day of the fiscal year Japan.
Markets will be open on Monday with Tankan pre market
Yen closed 151.39 in US
Data out pre market
Unemployment Rate Feb 2.6% vs 2.4% Jan (F/cast was 2.4%)
Jobs/Applications Ratio Feb 1.26 vs 1.27 Jan (F/cast was 1.27)
Tokyo Core CPI Mar 2.4% YoY vs 2.5% Feb (F/cast was 2.6%)
Tokyo CPI Mar 2.6% YoY vs 2.6% Feb (F/cast was 2.7%)
Tokyo CPI Ex Food & Energy Mar 2.9% YoY vs 3.1% Feb revised from 2.5% (F/cast was 2.5%)
Due 10 minutes before the open
Industrial Production Pelim Mar -0.1% MoM vs -6.7% Feb (F/cast was 1.4%)
Industrial Production Pelim Mar -3.4% YoY vs -1.5% Feb (F/cast was -2%)
Retail Sales Feb 4.6% YoY vs 2.3% Mar (F/cast was 2.9%)
Retail Sales Feb 1.5% MoM vs 0.8% Mar (F/cast was 0.4%)
At Lunch
2 yr JGB Auction 0.187% vs 0.18% prior
After Lunch
Housing Starts Feb -8.2% YoY vs -7.5% Jan (F/cast was -4.1%)
Construction Orders Feb -11% YoY vs 9.1% Jan (F/cast was -11%)
S Korea
Kospi opened up 9pts at 2,757 but initially tested down to 2,740 before working better to 2,755. Then it traded rangebound 2,745/55. Industrial production data was strong but retail sales weak. Market closed flat at 2,747.
Trade volume was moderate at 485.5 million shares worth 11 trillion won ($8.17 billion), with losers beating winners 603 to 270.
Foreign investors remained net buyers, scooping up a net 774.9 billion won worth of local shares, while institutions dumped a net 282.6 billion won and individuals sold 480 billion won.
Tech and Bio shares led the slight upturn, while auto and battery shares finished in negative territory
Samsung Electronics rose 1.98 percent and SK hynix advanced 2.69 percent
Celltrion up 4.03 percent and steel giant Posco Holdings edged up 0.24 percent
Hybe, the record label behind global superstars BTS, increased 0.44 percent, Naver went up 0.16 percent
Hyundai Motor fell 1.69 percent and Kia dropped 1.61 percent
LG Energy Solution down 1.62 percent and SK Telecom skidded 1.5 percent.
Won closed at 1,347.2 vs the greenback, down 1 won from the previous session's close.
Markets will be open Monday
S Korea shifted into full-scale election mode from Thursday, with political parties launching their official campaigns ahead of the general election on April 10.
Data out pre market
Industrial Production Feb 3.1% MoM vs -1.3% Jan (F/cast was 0.4%)
Industrial Production Feb 4.8% YoY vs 12.9% Jan (F/cast was 9.4%)
Retail Sales Feb -3.1% vs 0.8% Jan (F/cast was 0.5%)
Taiwan
Market opened higher at 20,156 and after dropping to 20,156 in the first 25 minutes, rallied back to the opening level traded sideways for most of the rest of the session and then rallied late session and then ticked lower to close up 148pts 0.73% at 20,294. Turnover of NT$475.39 billion (US$14.86 billion).
Taiwan Semiconductor Manufacturing Co. (TSMC) said Friday that children born to its employees in Taiwan accounted for 1.8 percent of the total number of newborns in the country in 2023. As it continues to implement the "TSMC Child Care Benefit Program 2.0." This provides a secure and enriching educational environment for TSMC employee's children aged two to six at its science park campuses.
Market will be open Monday. But markets will be close next Thursday for Qingming Festival.
No Data due
China
CSI 300 opened -4pts but rallied to 3,538 in the opening minutes. But trended lower in choppy trading. PM market dipped into the red but trended higher in the last hour to close in the green up 17pts 0.5% at 3,538
Chinese banks under pressure after posting shrinking net interest margins (NIM), while warning of ongoing property sector risks. They are under pressure to reduce interest rates on the loans they make to bolster flagging sectors as demand for lending falls. Wang Jingwu, a vice president at ICBC, said at a press conference that the bank would help stabilise the property market; without specifying how.
Markets open on Monday but Stock Connect closed.
Chinese markets will be closed next Thursday for Qingming Festival.
Data due after market but not yet released
Company Account Final Q4 vs $62.8B (F/cast is $55.2b)
Then PMI data on Sunday
Manufacturing Mar vs 49.1 Feb (F/cast is 51)
Non Manufacturing Mar vs 51.4 Feb (F/cast is 52)
General Mar vs 50.9 Feb (F/cast is 53)
Hong Kong
ADR’s closed Thursday in the US up 107pts 0.65% at 16,726. Most in the red but in the green HSBC, AIA, BoC HK, Tencent, Baba and Xiaomi.
Markets will be closed Friday and Monday for Easter weekend re-opens Tuesday. Market will also be closed next Thursday 4 April Qingming Festival; so expect light trading next week.
No Data due
Singapore
Market will be closed Friday but open on Monday
No Data due
India
Markets will be closed Friday but open on Monday
India is open to being a part of trading blocs which include China if Beijing ensures its economy is open, transparent, and complies with the rules of the World Trade Organisation, India's trade minister Piyush Goyal said at a media event on Thursday.
Data out after market Thursday
External Debt Q4 $648.2B vs $635.3B (F/cast was $638B)
Government Budget Value Feb INR -1514B vs -11026B Jan (F/cast was -13,880B
Infrastructure Output Feb 6.7% YoY vs 4.1% Jan revised (F/cast was 3.8%).
Europe
UK & German Markets closed on Friday and Monday
France open Friday but closed Monday
Eurozone No data due markets closed
Germany No data due market closed Re-opens Tuesday
France Inflation Rate Prelim, Household Consumption, PPI
United Kingdom No data due market closed Re-opens Tuesday
United States
Markets closed but Government working
Data due Core and PCE Price Index, Personal Income, Personal Spending, Goods Trade Balance Adv, Retail Inventories and Ex Auto, Wholesale Inventories Adv, Fed Chair Powell speaks
Financial Times No Digital Edition today for Easter.
Also no Bloomberg TV which I find more amazon considering that the important markets of Japan, S Korea, Taiwan and China are open. They are running re-runs but most of those have been run before. Considering the cost of Bloomberg it is shocking. The Bloomberg radio is re-running podcasts too. In today’s information age and considering all their promotion of being there 24/7 and the amount you pay…. I thought they would be live in Asia today.
20 years ago Reuters was the leader but missed the ‘message’ facility thinking that its better news flow was important. Bloomberg today is trying to be everything but I think there may be elements of complacency creeping in. Their latest tagline is that ‘it’s all about context … and context makes a difference’. Well in the context that Asia is open and Bloomberg isn’t rather puts us in context. Especially as they will be live in the US tonight, which is closed but they fell the PCE reading and Powell’s speech are important enough to ‘go live’.
Maybe Asian subscribers should get a discount because they aren’t important enough; In global GDP terms; it is estimated in 2023: China 16.9%, Japan 4.2%, S Korea 1.6% and Taiwan 0.9%; which totals 23.6% vs the US 25.4%. (Not bloomberg data :-))
More on China’s Property problems in China.
I was listening to the Waverton ‘Why Invest’ podcast with Chris Watling CEO and Chief Market Strategist of Longview Economics who was commenting on the China; his view is that they have a problem; they are faced with a Balance Sheet recession; historically debt has pushed up asset prices but then with ’Three red lines’ the property market collapsed but the debt is still there, both at the local authority level and personal level. Those debts have not been addressed, they are being still being pushed around the system but not addressed. But real property prices in China have fallen dramatically. It is a classic developing market trait the leaders are not prepared to face up to the truth of what values really are.
Anecdotally talking to people in China the house price indices don’t reflect reality. Beijing and Shanghai prices maybe holding up, but in the third and fourth tier cities prices are down 50% and that represents the savings of the people living in the tier one cities. Not only are their savings down 50% but they really don’t have much chance of selling and getting the remaining 50% of their savings back.
That is the real problem that China faces; how to unwind that position; your wealthy people, your potential investors have had their savings wiped out. A lot of that money was from the families of the first rich in China, those that benefitted from Deng’s reforms; those that were first to buy flats from the SoE’s back in the 1980’s. They benefitted most from the rise of the property sector and have implicitly supported the party. Some of them have now lost a lot is not everything and that implicit support for the party may be in question.
So what can China do? Russell Napier suggested deflation. China could devalue the Remembi; they did it in 1994; devalued it 50% overnight. That is why people are so worried about the dumping of Chinese exports it amounts to the same thing; using exports and exporting deflation.
I don’t think they will devalue last Friday they dropped the rate to gauge the reaction and it wasn’t good; so they reversed it earlier this week.
So what are their other options; they could set up a Bank to deal with the bad loans and swallow the losses. They have tried that in the past with limited success in setting up Cinda AM and Haroung to deal with bad debts in 1999. Then when some of large conglomerates ’strayed’ from the party line; like Fosun, Dalian Wanda etc.
The problem is that property in China is personal; property losses prompt social unrest. In the early days of the Evergrande problems when there were delays and some wealth products stopped paying returns, there were protests and whilst they were quickly suppressed; Beijing is aware of the social implications. For the CCP it is also key because they derive their legitimacy from social cohesion.
Since those early days things have got worse.
In China, until recently, pre sales were, for years the predominant way to buy a flat. In China that required a sizeable down payment; for first time buyers; it was 30%; although now reduced it's still 20% in some cities. For second homes that deposit rose to 60%.
The first protests and threats were from people buying the homes to live in, they were paying mortgages and seemingly unlikely to receive a home; so the Government is forcing the developers to complete those units to avoid social unrest. Also to protect the banks; because some mortgagees were threatening to stop paying their mortgages…. That could have triggered a run on the banks; especially the smaller regional ones. That would be another problem that President Xi could do without at the moment.
Beijing is less worried about those who bought second units, although in China these are rarely for investment, especially in lower tier cities; more usually it was people don’t trust the banks. For many in China; property is/was a store of value; like gold in India and now increasingly in China, the podcast also goes into the case for Gold.
But back to property. Second units were a store of value; Beijing is less worried about the wealthy suffering losses; that is actually in line with Xi’s ambition of ‘common prosperity’. Although he may have underestimated their loyalty… so there is a risk there.
But the fact remains that the CCP cannot afford for property prices to drop to a clearing level, the risk of social unrest and the removal of the party’s legitimacy.
So it is hoping that by completing units it can buy time for the economy to recover. Even if the units are delivered and it avoids social unrest the property crisis is far from over. Because property is still miss priced. Moreover because so many units are held as a store of value (now reduced in value) there remains a huge oversupply of overvalued property. All of that is before you consider the vast tracts of undeveloped land developers hold at inflated prices. There is also the amounts of debt that the local authorities hold in Local Government Financing Vehicles (LGFV) which were relying on future land sales to finance the interest payment.
The side issue is that the LGFV's had been used to finance previous infrastructure spending but generally into projects that were not commercially viable, but with booming land sales a few years ago that didn’t matter. But it does now. Those loans still need to be repaid. So it is not surprising that Beijing has called for a stop to any new infrastructure projects, especially in the poorer regions.
Add to that the fact that there are over supply problems in China, although that is largely because Beijing has rolled back the supply and demand reforms that Deng introduced after Mao. With other recent policy changes in the last couple of years (crackdown on Macau, restrictions on private education, reform of ecommerce, restrictions on online gaming) which has lead to the curtailment of the private sector (despite President Xi’s lip service of support).
Add to that President Xi’s focus on national security and the ascendancy of China which has raised the geopolitical stakes and you start to see why many investors are worried.
So despite President Xi telling western business leaders, this week that China was open for business; it is difficult to believe in the short term prospects. That doesn’t mean it is un-investible just that at present it will be more about trading opportunities than long term investments.
Faced with balance sheet deflation and without being prepared to allow asset prices deflation there is potential for China to face a loss decade or more, as Japan did. Which means that there are likely to be a lot of trading opportunities. During the past 20 years there have been a lot of great trades in Japan and I would expect the same for China in the years to come.
On Gold, it is interesting it is trading at all time highs when none of the normal reasons for it to be trading at these levels completely explain it. It was working until recently, the FT and others like Bloomberg have struggled to explain the moves.
Chris Watling, explains its trading at highs but could still break higher as he notes the fundamentals behind it have changed. He notes that their technical model had a sell signals in December; and how since then it has unwound those sell signals and hence his bullishness.
Part of that he says it is because there are price insensitive buyers; people like the Chinese. Government seeing to switch from USD dollars, to reduce exposure in case of geopolitical flare up and more US dollar weaponisation, Chinese actors and an increasing number of Chinese individuals, I think, who no longer trust in property as a store of value. Other buyers out there are an increasing number of Russians. All difficult to prove but rather bourne out by the price of gold.
Especially against the background of the amount of US debt that is out and needs refinancing. which also means that the US will end quantitive tightening (QT) and then the big question is whether they restart quantitive easing (QE). You can listen to the podcast for his views on that.
All good things to consider over the weekend and for the next quarter.
The Weekly Economist
Leads.
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Vietnam’s head of state leaves under a cloud
Investors should worry about the state of the country’s politics
On China
The men with Xi’s ear
Who is up and who is down on China’s economic team
Xi Jinping is in charge. The rest need sorting
A gruesome murder sparks a debate about juvenile justice in China
A system that had become more merciful is being tested
Spooks in the machine
What to make of China’s massive cyber-espionage campaign
America and others offer rich details of what Chinese spies are up to
Three-body shaming
Chinese nationalists have issues with “3 Body Problem”
The show is a hit in the West. But its history lesson is not for everyone
In the Finance section
Hide and seek
China’s banks have a bad-debt problem
As is becoming increasingly obvious
INDIA
Narendra Modi’s secret weapon: India’s diaspora
Migrants help campaign for the prime minister at home and lobby for the country abroad