Data impacting Asia July 1- 5; and some things to know before trading Asia on Monday. Plus a summary of The Weekly Economist and FT Weekend

Hong Kong & Taiwan closed Monday, US closed July 4 and then US payrolls data. Plus a new overhang; should Biden step aside; if so who runs.... I'm pretty sure they will be better than Trump.

Jun 30, 2024

Asia
The start to Q3 and the second half is a trading shortened week in the Hong Kong, Taiwan and the US. Friday’s Core PCE data was perfect, which is a one more positive data point for the Fed. The University of Michigan data was also encouraging with inflation expectations easing. This week’s focus will be the US payrolls. Worth noting that a lot of brokers released their top picks for the second half on 2024.

The other elephant now in the room is the US election; neither candidate is a good option; but whilst difficult, I think the Democrats could and should change Biden, even if he doesn’t want to step down. The Republican’s with everything centred on Trump means changing their candidate is effetely impossible although they have some excellent options.

Hong Kong closed for Establishment Day which marks the 27th anniversary of the Handover. It highlights the changes that have occurred over the years, most notably recently the National Security Law which has removed many freedoms.

Chinese PMI data out Sunday (looking mainly at SoE companies) was mixed, Manufacturing flat MoM but in line with forecasts and still below 50; Non Manufacturing and General dropped MoM and missed slightly. Not good for the open on Monday or the Caixin PMI data on Wednesday which will give an insight into the situation of the SME’s and private enterprises.

The US jobs data on Friday is expected to fall MoM although the unemployment rate should remain unchanged it is expected that average hourly earnings will have eased; which should give the Fed more encouragement about cutting interest rates. Market reaction is likely to be muted as the numbers come out between the July 4 holiday and the weekend; means many investors are likely to be on holiday

Housekeeping
I will be on RTHK radio 3’s Money Talk on Monday morning, if you want to listen to the programme here; https://www.rthk.hk/radio/radio3/programme/money_talk

For leading independent research, check out http://ERI-C.com a platform for vendors of interesting research and trading analysis. ERI-C is free to access, you can browse different independent research providers, most offer free trials so take a look. There is a recent webinar from John Greenwood; designer of the Hong Kong peg; on 'How Monetary Analysis Performed in and Since the Pandemic'

There is also a lot more on the platform and you can try before you buy; so take a look or drop me a line and I’ll go through it with you.

If you are interested in AI, I recommend Sean Maher of ENTEXT Economics & Research; He has a lot of excellent insights into how to invest in the AI sector; well beyond the chip names. He recently gave a webinar which I wrote up last week; let me know if you would like more details

There are lots more contributors on the ERIC platform; many with free trails so let know if you have interest.

For macro assets allocation checkout Mark Tinker’s Market Thinking
https://www.market-thinking.com His latest blog 'China isn’t failing, we are failing to analyse it properly. By constantly trying to analyse a rapidly emerging China as if it is the US, we are constantly being surprised.

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MARKET INDICATIONS For Monday

New Zealand.
NZX re-opens having been closed Friday expect a lower open.
No Data due

Australia
Futures indicate ASX opening lower down 9pts
Data Due pre market
Manufacturing PMI Final Jun vs 47.5 May (F/cast 47.5)
After the open
Job Ads Jun MoM vs -2.1% May (F/cast is -1.2%)

Japan
Nikkei futures indicate a higher open.
Yen closed 160.83 on weaker USD
Data Due lunchtime
Manufacturing PMI Jun vs 57.5 May (F/cast 58.5)
Consumer Confidence Jun vs 36.3 May (F/cast 36)

S Korea
Market to open flat key will be the pre market trade data.
Data due on the open
Balance of Trade Jun vs $4.96B May (F/cast $5B)
Exports Jun YoY vs 11.7% May (F/cast 6.5%)
Imports Jun YoY vs -2% May (F/cast -2%)
Due 30 minutes after the open
Manufacturing PMI Jun vs 51.6 May (F/cast 51.2)

Taiwan
Market closed
Data Due
Manufacturing PMI Jun vs 50.9 May (F/cast 50)

China
Markets to open lower, on Friday the Golden Dragon China Index closed -60pts -1.02% at 5,742, just off the day low. China warned of more rainstorms across the country, urging people to prepare for potential landslides as a prolonged bout of severe weather threatens travel and agriculture. -VE for commerce and sentiment and could impact food inflation.
Yuan weakness remains a concern
Data due 15 minutes after the open
Caixin Manufacturing PMI Jun vs 51.7 May (F/cast 51.2)
Data out Sunday morning
PMI
Manufacturing Jun 49.5 vs 49.5 May (F/cast is 49.3)
Non Manufacturing Jun 50.5 vs 51.1 May (F/cast is 50.8)
General Jun 50.5 vs 51.0 May (F/cast is 50.5)

Hong Kong
Market closed for Labour Day. HK ADR’s closed -51pts -0.3% at 17,670 with only Ping An, CLP, SHKP, BoC HK, Swire and Lenovo in the green.
No Data Due

Singapore
Data due
Bank Lending May vs S$804.3B (F/cast S$805B)

India
Data Due late morning
Manufacturing PMI Jun vs 57.5 May (F/cast 58.5)

Europe
Data Due
Eurozone No Data due
Germany Retail Sales, Import Prices, Unemployment Persons, Change and Rate.
France Inflation Rate, PPI
United Kingdom Current Account, GDP Growth Rate Final, Business Investment

United States
After market Friday
Nike -11% sales disappointed and warned about China sales. -VE cross read to the Asian footwear makers.
Data due Feds Barkin Speaks pre market. Core & PCE Price Index, Personal Income & Spending, Chicago PMI, Michigan Consumer Data Final (Sentiment, 5 year Inflation Expectations, Consumer Expectations, Current Conditions, Inflation Expectations) Grain Report, Baker Hughes Rig Count.
Sunday Feds Williams speaks

HEADLINES and NEWS

AUSTRALIA
Job cuts prompt anger and threat of industrial action at Nine. Executives from Nine’s broadcast, publishing and radio divisions are discussing the extent of cuts with staff as the company seeks $30 million in savings

Santos uses new tactic to fight climate change movement after traditional owners lose court challenge against Barossa gas project. Santos is trying an unusual new tactic to fight the climate movement by pursuing environmental groups who championed the court case of traditional owners opposing the Barossa gas project. While the gas giant says it won't seek costs from traditional owners, it told the court it may pursue costs against the group's lawyers. What's next? Experts say the new strategies could stymie all public interest lawsuits, which led to the Mabo and Franklin Dam determinations.

Secret deals and triple-figure blowouts: Replacing the Spirit of Tasmania ferries. Spirit of Tasmania's state-owned operator TT-Line and the Tasmanian government have been trying to get two new ships built since 2017, but the project has faced obstacle after obstacle. This week, TT-Line detailed how it came to the decision to pay a Finnish shipbuilder an extra $81 million, while copping a 400 per cent blowout in wharf upgrade costs – without telling the public. What's next? The government is still hoping the first of the two new vessels will arrive by the end of the year, where it will undergo tests from Hobart before heading to Devonport.

JAPAN
Russia protested to Japan on Friday about Tokyo's plans to hold joint military exercises on the island of Hokkaido and accused Prime Minister Fumio Kishida of placing his country "on a path to dangerous escalation”. Russia's Foreign Ministry, in a note on its website, said a protest had been issued to Japan's embassy in connection with the announcement that drills would be held with Germany and Spain later this month. The note said Tokyo was told it was "categorically unacceptable" to engage in military activity off Russia's far eastern coast, particularly taking into account the participation of NATO members located far from the region.

"We view such activity as a potential threat to the security of the Russian Federation," the ministry statement said.

Japan is getting a new currency czar just as the yen trades near its weakest levels in almost four decades, Japanese Minister of Finance Shunichi Suzuki said. Atsushi Mimura has been appointed as the new Japanese vice minister of finance for international affairs, making him the face of official efforts to manage the yen, as Masato Kanda steps down, Suzuki said yesterday. The move, which takes effect on July 31, is part of a normal personnel rotation and would not affect the country’s broad currency policies. Mimura would almost certainly follow the same script as his predecessor in advocating for a stable currency that reflects economic fundamentals. Still, the role involves delicate communications with media. Kanda emerged as a highly charismatic policy spokesman after assuming the position in 2021.

Growth in Japanese household spending probably slowed to a crawl in May, data will show this week, underscoring weak private consumption which could hamper a sustainable economic recovery. Internal affairs ministry data due next Friday is likely to show that all household spending in May rose 0.1% from a year earlier, following a 0.5% gain the previous month and up for the second straight month, according to a Reuters poll. A slowdown will have far reaching implications as household spending is a key gauge of private consumption and the overall economy. By some economists' estimates, the world's fourth largest economy has contracted for three straight quarters through the January-March period. Economists see GDP rebounding this quarter, driven by domestic demand led by higher wages and capital expenditure, while elevated interest rates in the United States and Europe as well as a slowdown in China cloud the outlook. "Considering underlying inflation, consumption has not yet emerged from its soft patch. As prices are not yet coming down, households remain thrifty," said Takeshi Minami, chief economist at Norinchukin Research Institute. "Although wages may be rising sharply, and services consumption may have picked up during the Golden Week holidays in early May, this survey reminds us of weak consumption."

On a seasonally-adjusted month-on-month basis, all household spending likely rose 0.5% in May, rebounding from a 1.2% decline in April.

Citadel will buy Japanese power firm Energy Grid in its first acquisition in Japan and the first major U.S. investment in Japan's wholesale energy market in recent years, billionaire investor Kenneth Griffin's hedge fund said in a statement. The privately held Energy Grid provides power price risk management services to Japanese companies and the deal will give Citadel direct access to the Japanese power market. Since Energy Grid's establishment in 2021, the power market in resource-poor Japan has been volatile due to Russia's invasion of Ukraine, which precipitated a global energy crisis. Japan, which imports most of its energy resources, was already in a precarious position following the March 2011 earthquake and Fukushima nuclear disaster, when many of its major nuclear power stations were shut down.

The deal will "broaden the delivery of hedging solutions to Japanese energy producers and consumers", Sebastian Barrack, head of commodities at Citadel, said. Energy Grid will expand trading volumes and "offer longer-term risk management opportunities to more market participants", said Yohei Jozaki, chief executive officer of Energy Grid. The transaction is expected to close in the third quarter of 2024, subject to conditions. The deal size has not been disclosed. Miami, Florida-based Citadel manages approximately $63 billion in assets and its flagship fund has gained more than 7.5% so far in 2024, according to a person familiar with the matter.

The U.S. auto safety regulator said on Friday it has opened a recall query into over 120,000 Honda (7267.T) Ridgeline U.S. vehicles over rear-view camera (RVC) failures. The U.S National Highway Traffic Safety Administration (NHTSA) said the query concerned the model year 2017-2019 of Honda Ridgeline vehicles. The RVC wire harness was manufactured with a material which was susceptible to breakage upon repeated opening and closing of the tailgate, which ultimately leads to a complete loss of RVC function, the NHTSA said. Honda has identified a replacement harness manufactured by a new supplier with improved material properties to withstand wear from bending, the regulator added.

Toyota (7203.T) is planning to launch the first electric car model equipped with an advanced autonomous driving system similar to Tesla’s Full Self-Driving for the Chinese market next year, one of its Chinese joint ventures said. The JV with state-owned Guangzhou Automobile Group (601238.SS) (GAC) aims to restore the Japanese automaker's market share in China by catching up with Chinese rivals on technologies in hybrids, batteries and intelligent vehicles. The venture announced a series of innovation targets at an event in Guangzhou on Friday. GAC Toyota said it would launch Bozhi 3X SUV next year as the first model to be equipped with the system that would enable advanced driving assistance for parking and navigation on highways and urban traffics. This would ensure its leadership in autonomous driving technology offerings among all foreign brands in China, it said. GAC Toyota is developing the system with Momenta Global, a startup that develops autonomous driving software for automakers including Mercedes-Benz. It also works with Huawei (HWT.UL) to use the latter's in-vehicle operating software starting with an electric sedan to be launched in 2025 for China. The automaker also said it would roll out an iron phosphate lithium battery during 2026 and 2027 that could reduce the production cost of its bZ4X EV by 40%.

Sony Group Corp will cut around 250 jobs from its recordable media business' key manufacturing hub in northeastern Japan and offer early retirement packages to its employees, sources close to the matter said Saturday. The planned job cuts come amid a decline in demand for traditional storage formats such as Blu-ray discs, with streaming services now the norm. The manufacturing base in Tagajo, Miyagi Prefecture, currently has a workforce of around 670 people. The electronics and entertainment conglomerate will also gradually cease production of optical disc storage media products, including Blu-ray discs, according to the sources.

Japan is set to obligate major manufacturers to utilize recycled plastics as part of efforts to cut plastic pollution and promote decarbonization. The government aims to revise the law on the promotion of effective utilization of resources as early as at next year's regular Diet session, with the revision expected to request manufacturers to set specific targets and report their achievements on a regular basis. The Ministry of Economy, Trade and Industry presented the plan at a meeting of experts, in which ways to effectively utilize limited resources were also discussed. Currently in Japan, the majority of plastic waste is "recycled" through burning, a method called thermal recycling, through which generated heat is used for power generation or other purposes. The European Union, however, considers CO2-emitting thermal recycling as energy recovery rather than recycling. Two other ways of recycling plastics are material recycling, in which plastic waste is reused as raw materials to create new products, and chemical recycling, in which plastic waste is chemically broken down into raw materials to create entirely new products, according to the Plastic Waste Management Institute. Under the current law, it is not mandatory for manufacturers to use recycled plastics, and they are simply asked to make reasonable efforts to that end. Through the revision, the government is considering to introduce a system in which it issues recommendations to or even imposes fines on underachievers. Plastics are used for a number of applications in daily life. The volume of plastic product consumption in Japan reached 9.10 million tons in 2022, according to the institute, with wrapping and containers accounting for the largest portion at 44.7 percent, followed by electronic devices at 15.4 percent. The Group of Seven industrialized nations, including Japan, have agreed to put an end to additional plastic pollution by member countries by 2040.

SOUTH KOREA
North Korea blames South Korea, U.S. and Japan ties as Asian version of NATO. It criticised a joint military exercise by the countries held this month, state media said on Sunday, saying such drills show the relationship among three countries has developed into "the Asian version of NATO”. On Thursday, the three countries began large-scale joint military drills called "Freedom Edge" involving navy destroyers, fighter jets and the nuclear-powered U.S. aircraft carrier Theodore Roosevelt, aimed at boosting defences against missiles, submarines and air attacks. Pyongyang will not ignore the strengthening of a military bloc led by the U.S. and its allies and will protect regional peace with an aggressive and overwhelming response, North Korea's foreign ministry said in a statement, according to KCNA news agency.

South Korea on Saturday commemorated the 22nd anniversary of its victorious naval skirmish against North Korea, paying tribute to Navy sailors killed in action and vowing to honor their sacrifices with a firmer defense posture. The ceremony marking the anniversary of the Second Battle of Yeonpyeong took place at the Navy's 2nd Fleet Command in Pyeongtaek, 60 kilometers south of Seoul. Defense Minister Shin Won-sik, Chief of Naval Operations Adm. Yang Yong-mo and Vice Veterans Minister Lee Hee-wan, who fought in the battle, attended the ceremony. They were joined by Navy sailors from the skirmish and the families of those who lost their lives on June 29, 2002. Leaders of major political parties were also on hand.

SK Group, South Korea's chip-to-construction conglomerate, said Sunday it will secure 80 trillion won ($58 billion) by 2026 for investments, mainly in artificial intelligence and semiconductors. Some 20 chief executives of the group's major affiliates gathered at its research center in Icheon, 58 kilometers southeast of Seoul, from Friday to Saturday to come up with investment plans for future growth, SK Group said in a statement. "The group needs to preemptively make drastic changes in the face of the new transition era," SK Group Chairman Chey Tae-won said in the meeting. He attended online as he was visiting the United States for meetings with American tech executives. SK Group must also strengthen "AI value chain leadership," from AI services to AI infrastructure, the chairman said.

SK hynix, the world's second-largest memory chip-maker by revenue, said Friday it had successfully developed the industry's highest performancesolid state drive chip that can significantly enhance the process speed in on-device artificial intelligence. The product, dubbed PCB01, comes with the capabilities of sequential read and write speeds of 14 gigabyte and 12GB per second, respectively, bringing the performance of an SSD to a level unseen before, SK hynix said. The speeds allow the operation of a large language model for AI training and inference, in a second. The product also improves power efficiency by more than 30 percent compared with the previous generation, enhancing the stability of large-scale AI computing tasks.

Korean Air is expected to continue its trajectory with another solid quarter, backed by increased revenue from the company’s cargo business, according to a security firm’s report and industry sources Friday. According to Daishin Securities’ report, Korean Air’s revenue from its cargo business is expected to increase in the second quarter due to high demand, increased cargo and a recent drop in fuel prices. “The April-June period is considered as a low season for air carriers, but Korean Air is expected to post earnings that are better than consensus,” a source from the local aviation industry said.

Woori Financial Group said Friday it released its annual sustainability report containing the conglomerate's initiatives and achievements pursued last year to strengthen its environmental, social and governance endeavors. “At Woori Financial Group, all executives and employees will work together to achieve the ESG vision of ‘a better world we create through finance’ and contribute to the sustainable development of our society,” Woori Financial Group Chairman Yim Jong-Yong said in the statement. With the ultimate goal of achieving net-zero greenhouse gas emissions by 2050, the 2023 Sustainability Report covered three main topics -- establishment of mid- to long-term carbon reduction goals, measures for reducing financial emissions, and obtaining a certification from Science Based Targets initiative.

Webtoon Entertainment, a subsidiary of Naver in the US, rose around 10 percent in the first day of trading on Nasdaq on Thursday, giving the company a valuation of $2.92 billion. Webtoon Entertainment’s stock first opened at $21.30, and traded as high as $24. The stock price eased off the peak to close at $23. Through the initial public offering, Webtoon Entertainment is estimated to have raised $315 million, selling 15 million shares. The company earlier announced the pricing of its IPO of 15 million shares of common stock at a price to the public of $21 per share. Naver’s stake in Webtoon Entertainment came to 63.4 percent after the IPO, followed by LY Corporation with 24.7 percent.

TAIWAN
Taiwan and Thailand have signed an agreement to promote and protect bilateral investment and trade, the Executive Yuan’s Office of Trade Negotiations (OTN) said on Friday. The agreement on “Promotion and Protection of Investments” was signed by Representative to Thailand Chang Chun-fu and Thailand Trade and Economic Office in Taipei executive director Narong Boonsatheanwong on Thursday, the OTN said in a news release. Thailand has become the fifth trading partner to sign an investment agreement with Taiwan since 2016, following earlier agreements with the Philippines, India, Vietnam and Canada, the OTN said. The deal marks a significant milestone in the development of economic and trade relations between Taiwan and Thailand, it said. The two sides previously signed an investment agreement in 1996, but as businesses have evolved and diversified that deal no longer met the needs of overseas investors, it said.

Taiwanese could risk being extradited to China when traveling in countries with close ties to Beijing, Taiwan Association of University Professors deputy chairman Chen Li-fu said on Friday. Chen’s comments came after China on Friday last week announced new judicial guidelines targeting Taiwanese independence advocates. Myanmar, Cambodia, Laos and Djibouti are among the countries where Taiwanese could risk being extradited to China, he said. The Mainland Affairs Council (MAC) on Thursday elevated the travel alert for China, Hong Kong and Macau to “orange” after Beijing announced its guidelines to “severely punish Taiwanese independence diehards for splitting the country and inciting secession.” Extradition treaties between China and about 60 countries have a provision to exclude the extradition for political offenses, MAC deputy head and spokesperson Liang Wen-chieh said.

Taiwanese can visit China “without the slightest worry,” the Chinese government said, condemning Taiwan’s decision to raise its travel alert level after Beijing issued threatening measures targeting Taiwanese independence advocates. Last week, Beijing published judicial guidelines on criminal punishments for supporters of Taiwanese independence, including the death penalty for “particularly serious” cases involving “diehard” advocates. It vowed to pursue people it views as “Taiwan separatists” wherever they might be, though Chinese courts have no jurisdiction in Taiwan. In response, the government on Thursday urged the public to avoid “unnecessary travel” to mainland China, Hong Kong and Macau. It also raised its travel warning for China to the second-highest “orange” level.

Overseas enterprises setting up artificial intelligence (AI) research-and-development centers in Taiwan should bring the world’s engineers to Taiwan so that it has enough AI talent, Minister of Economic Affairs J.W. Kuo said in San Francisco Friday. Speaking at a forum held by Taiwanese start-ups, Kuo said he hoped to meet with tech companies that have announced plans to invest more in Taiwan and discuss greater collaboration, especially on their long-term plans for recruiting more global talent to work in the nation. The issue is that the number of engineers in Taiwan is limited and would continue to be in the future, given Taiwan’s low birthrate, he said.

CHINA
China's manufacturing contracted for a second month in June, an official factory survey showed on Sunday, keeping alive calls for further stimulus after a string of recent indicators showed the economy struggling to get back on its feet. The official purchasing managers' index (PMI), at 49.5 in June, was unchanged in May, below the 50-mark separating growth from contraction and in line with a median forecast of 49.5 in a Reuters poll. The PMI, a sentiment-based indicator, tends to paint a gloomier picture of the world's second-biggest economy than hard data. However, disappointing May industrial output numbers suggest factory owners have some reasons to be worried. While China's exports exceeded forecasts in May, experts say the jury is still out on whether export sales are sustainable given growing trade tensions between Beijing and Western economies. Meanwhile, a protracted property crisis continues to drag on domestic demand. As consumers remained wary and the May holiday boost faded, the non-manufacturing PMI, which includes services and construction, fell to 50.5 from 51.1 in May, the lowest since December. Analysts expect China to roll out more policy support measures in the short term, while a government pledge to boost fiscal stimulus is seen helping kick domestic consumption into a higher gear. But high local-government debt and deflationary pressures cast a long shadow over recovery prospects, despite a slew of measures officials have rolled out since last October, tempering investors' and factory owners' expectations. Private sector investment grew 0.1% in January to May, down from 0.3% in the first four months alone, while the property investment slump worsened. China's central bank last month announced a relending programme for affordable housing to accelerate sales of unsold housing stock so supply better matches demand. Officials are under pressure to fire up new growth engines to reduce the economy's reliance on property.

China and Peru have achieved "substantial conclusion of negotiations" on the upgrading of a free trade agreement between both countries, Chinese state media said on Friday. In a meeting with Peruvian President Dina Boluarte in Beijing, President Xi Jinping said both sides should coordinate and promote cooperation in fields such as minerals, energy, manufacturing, agriculture and others, state broadcaster CCTV said. Peru and China signed a free trade agreement in 2009, which helped the South American nation boost its exports. Peru's press office reported that Boluarte and Xi also signed a series of agreements to strengthen ties, including one on Peruvian grape exports to China, and a memorandum of understanding establishing a Peruvian-Chinese Business Council. China is Peru's top investor and the top market for copper from Peru, the world's third largest producer of the red metal. "China's interest in key sectors of the Peruvian economy, such as mining, infrastructure and energy, is fundamental to national development plans, while ongoing investments are a source of employment and a promise of progress," Boluarte said in a statement from her office. Visiting China this week, Boluarte has met with executives from several companies as well as Xi, who she invited to inaugurate in November the Chancay "megaport" being built on Peru's coast by Chinese company Cosco Shipping. Xi is expected to travel to Peru in November for the summit of leaders of the Asia-Pacific Economic Cooperation (APEC), a bloc that accounts for almost half of world trade.

An executive from China's battery giant CATL says that Western tariffs tied to electric vehicles present a "challenge" for the firm, and are bad for customers too. Citing unfair competition, the European Union is due to impose hefty tariffs on Chinese-made EVs by July 4, after Washington increased duties on the sector last month. Canada suggested last week it might also follow suit. CATL is a major player in the market as the world's top producer of EV batteries, having signed deals with carmakers including Tesla, Stellantis and BMW. "I will say this is a challenge," said Ni Jun, CATL's chief manufacturing officer. "I believe (the tariffs are) not good for the consumer," he told AFP at a World Economic Forum event in the northern city of Dalian. "Whether you are a European consumer or Asian consumer, we want to have affordable product, high quality, (that) can save the planet.” CATL has been helped by robust financial support from Beijing, which has prioritized the development of domestic high-tech industries that it views as strategically advantageous. "China invests heavily in the lithium-ion battery research, development and production," Ni said. Such support is the source of complaints from Western governments about unfair competition. Many of the vehicles affected by tariffs are fitted with batteries from CATL, which is aiming to ramp up its operations in Europe next year. Based in the coastal Chinese city of Ningde, the company is currently building a second European factory in Hungary. At home, the firm's success in recent years has been galvanised by rapid growth in the domestic market. Not only had China seen "a massive introduction" of personal car ownership over the past 30 years, but also the establishment of "the capability, the entire supply ecosystem" for EVs, Ni said.

This gave Chinese firms a huge advantage in the global shift towards green transport. "There's already capability for China to go quickly," he said.

OpenHarmony OS continues to advance in China. Packed into a small room, a drone, bipedal robot, supermarket checkout and other devices showcase a vision of China’s software future — one where an operating system developed by national champion Huawei has replaced Windows and Android. The collection is at the Harmony Ecosystem Innovation Center in the southern city of Shenzhen, a local government-owned entity that encourages authorities, companies and hardware makers to develop software using OpenHarmony an open-source version of the operating system Huawei launched five years ago after US sanctions cut off support for Google’s Android. While Huawei’s recent strong-selling smartphone launches have been closely watched for signs of advances in China’s chip supply chain, the company has also quietly built up expertise in sectors crucial to Beijing’s vision of technology self-sufficiency, from operating systems to in-vehicle software. Chinese President Xi Jinping (習近平) last year told the Chinese Communist Party’s elite politburo that China must wage a difficult battle to localize operating systems and other technology “as soon as possible,” as the US cracks down on exports of advanced chips and other components.

OpenHarmony is being widely promoted within China as a “national operating system,” amid concerns that other major companies could be severed from the Microsoft Windows and Android products upon which many systems rely. Huawei no longer controls OpenHarmony, having gifted its source code to a nonprofit called the OpenAtom Foundation in 2020 and 2021, an internal memo and other releases said. The growth of HarmonyOS, expected to be rolled out in a PC version this year or next, would spur adoption of OpenHarmony, analysts said.

Innotron Memory, the parent firm of China’s top chipmaker, Changxin Xinqiao Memory Technologies Inc (CXMT), is to invest no less than 17.1 billion yuan (US$2.4 billion) in an advanced packaging plant in Shanghai that could be used to make artificial intelligence (AI) memory. Innotron signed a contract with the local government this month via a Shanghai subsidiary to secure land, and the new site is expected to start production in mid-2026, official documents published on a Shanghai government website said. The project would focus on a wide range of packaging technologies, including an advanced process called through-silicon via (TSV) required to make high-bandwidth memory used to power AI applications, one of the documents said. The facility is expected to provide packaging capacity for 30,000 units per month. Innotron earlier this year secured a deal with a number of investors to raise a total of 10.8 billion yuan, according to a March exchange filing from GigaDevice Semiconductor, one of the parties involved. Innotron plays a critical role in China’s efforts to compete with the US in the emerging AI field, which requires cutting-edge semiconductors. However, China’s chipmaking capabilities have been hampered by a US-led multinational campaign to restrict Beijing’s access to advanced equipment, a sector that is dominated by American, Dutch and Japanese suppliers.

China has unveiled a list of rare earth regulations aimed at protecting supplies in the name of national security, laying out rules on the mining, smelting and trade in the critical materials used to make products from magnets in electric vehicles to consumer electronics. The regulations, issued by the State Council or cabinet on Saturday, say rare earth resources belong to the state, and that the government will oversee the development of the industry around rare earths - a group of 17 minerals of which China has in recent years become the world's dominant producer, accounting for nearly 90% of global refined output. Their global industrial significance is such that under a law that entered into force in May the EU set ambitious 2030 targets for domestic production of minerals crucial in the green transition - particularly rare earths due to their use in permanent magnets that power motors in EVs and wind energy. EU demand is forecast to soar sixfold in the decade to 2030 and sevenfold by 2050. The new Chinese regulations, which will take effect on Oct. 1, say the State Council will establish a rare earth product traceability information system. Enterprises in rare earth mining, smelting and separation, and the export of rare earth products, shall establish a product flow record system, shall "truthfully" record the flow, and shall enter it into the traceability system, the State Council said. China already last year introduced restrictions on exports of the elements germanium and gallium, used widely in the chip-making sector, citing the need to protect national security and interests. It also banned the export of technology to make rare earth magnets, in addition to imposing a ban on technology to extract and separate rare earths. Those rules fanned fears that restrictions in rare earth supplies might help increase tensions with the West, particularly the United States, which accuses China of using economic coercion to influence other countries. Beijing denies the claim.

HONG KONG
Earnings
LUK FOOK HOLD (00590.HK) announced its annual results for the year ended March this year. Net profit hiked 37.6% YoY to $1.767 billion, the second highest in its history, with an EPS of $3.01. A final dividend of HK64 cents was declared, compared to HK55 cents in the same period last year. Together with the interim dividend of HK72 cents, a total dividend of $1.41 per share will be paid for the year. Total revenue for the year was $15.326 billion, representing a YoY increase of 28%. The group explained that the revival of retail business in Hong Kong and Macau was the main growth driver during the period, fuelled by the low base effect and the full reopening between Hong Kong/Macau and the Mainland. Retail revenue for the year surged by 45.3% to $12.75 billion, accounting for 83.2% of the group's total revenue, mainly driven by sales of gold products.

GEELY AUTO (00175.HK) announced that its 1Q24 net profit was RMB1.561 billion, hiking 119% YoY. Revenue reached RMB52.315 billion, lifting 56% YoY. Sales were 475,700 vehicles, up 49% YoY. Zeekr Holding, a subsidiary of GEELY, delivered about 33,000 vehicles in 1Q24, surging 117% YoY. Revenue was RMB14.7 billion, mounting 71% YoY. Gross profit was RMB1.8 billion, leapfrogging 137% YoY. Gross profit margin elevated 3.4 ppts YoY to 12.3%.

IPO
Metasurface Technologies Holdings Limited(08637.HK), which will be listed Tuesday, opened down 0.8% to $2.4 on gray market. Peaking/ bottoming at $2.59/1.7, it closed at $1.72, down 28.9% or $0.70 from the listing price, on volume of 5.64 million shares and turnover of $10.6 million, according to PhillipMart data. Excluding handling fee, the book loss was $700 per board lot size of 1,000 shares. Futu data showed Metasurface Technologies opened up 5.4% to $2.55 on gray market. Peaking/ bottoming at $2.99/1.8, it closed at $2.03, down 16.1% or $0.39 from the listing price, on volume of 1.6 million shares and turnover of $3.64 million. Excluding handling fee, the book loss was $390 per board lot size of 1,000 shares.

PROFIT ALERT
XINYI SOLAR (00968.HK) announced a positive profit alert, forecasting that the consolidated net profit for the six months ending 30 June 2024 is expected to soar by 35% to 45%, compared to the net profit of $1.392 billion for the six months ended 30 June 2023. XINYI SOLAR attributed the rise to the relatively low level of profitability of the group for 1H23 for comparison purposes, increases in the sales volume of the group’s major solar glass products for 1H24 in YoY terms, the improvement in the gross profit margin during the 1H24 as a result of decreases in the costs of certain raw materials and energy, as well as the group’s continuous enhancement in production capacity and efficiency, which was partially offset by the decreasing average selling prices of certain solar glass products of the group. Stock has been a popular short and so may see an initial squeeze.

Buybacks
AIA (01299.HK) repurchased 1.33 million shares on the Stock Exchange at a price of $52.85-$53.6 per share Friday, involving a total amount of about $70.704 million. Since the ordinary resolution was passed, a total of 90.1166 million shares have been repurchased, representing 0.8021% of the company's share capital.

TENCENT (00700.HK) announced that it repurchased 2.68 million shares on the Stock Exchange at a price of $371-$375.6 per share Friday (28 June), involving a total amount of around $1 billion. Since the ordinary resolution was passed, a total of 77.83 million shares have been repurchased, representing about 0.83% of the company's share capital.

Watch for other companies announcing Friday share buybacks ahead of the open on Tuesday.

HSI Short Selling Friday 17.4% vs 16.2% Thursday
Top shorts CM Bank (3968) 57%, MTRC (66) 48%, BoC (HK) (2388) 46%, Haidilao (6862) 38%, Tingyi (322) 38%, CKI (1038) 38%, Bud APAC (1876) 37%, Bank of China (3988) 36%, Li Auto (2015) 35%, Techtronic (669) 34%, China Res Land (1109) 34%, ICBC (1398) 32%, Galaxy Ent (27) 30%, WH Group (288) 28%, BYD (1211) 28%, CLP (2) 28%, Nongfu Spring (9633) 27%, Hang Lung Ppty (101) 27%, New World Development (17) 27%, SinoPharm (1099) 26%, Mengniu Diary (2319) 26%, China Overseas (688) 26%, Sunny Optical (2382) 25%.

WATCH
To enhance market microstructure and liquidity, HKEX (00388.HK) announced that it will start consulting market opinion for the proposed reduction of minimum spreads in the Hong Kong securities market. HKEX’s proposal adopts a gradual, two-phase approach to reduce the minimum spreads of selected price bands, following a holistic review of the liquidity profile of the applicable securities, including equities, REITs, and equity warrants.

In Phase 1, the proposal recommends a 50-60% reduction in the minimum spreads of price bands between $10 and $50. An additional Phase 2 will involve reducing the minimum spread for price bands between $0.5 and $10 by 50%. HKEX may consider proceeding with the implementation of Phase 2, subject to the implementation of the proposed changes in Phase 1 and a review of its impact. The bourse expected that around 300 and 1,300 applicable securities, accounting for nearly 30% and 25% of the average daily turnover of equities, will be included in Phase 1 and 2 respectively. Minimum spread is the minimum price change for a stock traded on an exchange and determines the tightest bid-ask spread allowed. HKEX Deputy CEO and Co-COO Wilfred Yiu commented that reducing minimum spreads for securities in certain price ranges could help with the price discovery process and facilitate greater liquidity, allowing investors to enjoy lower overall transaction costs. BUT for value players it reduces the opportunity of benefitting from the spread difference.

The HK Government announced its financial results for the two months ended May 31, 2024. Expenditure for the period April to May 2024 amounted to HK$120.6 billion and revenue HK$50.9 billion, resulting in a cumulative year-to-date deficit of HK$77.5 billion after taking into account the repayment of HK$7.8 billion principal on Government Bonds. A Government spokesperson said that the cumulative year-to-date deficit for the period was mainly due to the fact that some major types of revenue including salaries and profits taxes are mostly received towards the end of a financial year.

Eddie Yue, Chief Executive of the HKMA, said that discussions with the People's Bank of China (PBOC) on a Cross-border Payment Connect scheme between Mainland and Hong Kong were underway recently, and a Memorandum of Understanding on its commencement would be signed shortly to provide a framework of cooperation for the commencement of cross-border payment interconnection between the two sides. The objective of the scheme is to promote more secure, efficient and convenient cross-border payment and clearing services to further facilitate economic activities and people-to-people exchanges between the two places in future. Details of the relevant work will be announced in due course.

One of the highlights is the "Three Connection, Three Facilitation" announced by the HKMA and the PBOC at the beginning of this year, a 6-point policy package centred around the internationalisation of RMB and support for facilitating business and convenience of people in the Greater Bay Area. On financial market connectivity, the HKMA and the Mainland financial authorities are actively exploring further expansion of the use of onshore bonds as collateral in the offshore market. The relevant parties are striving to reach a consensus in the near future and make an announcement as soon as possible.

According to statistics published today by the Hong Kong Monetary Authority (HKMA), total deposits with authorized institutions increased by 1.1% in May 2024. Among the total, HKD deposits and foreign currency deposits increased by 0.3% and 1.8% respectively in May. In the year to end-May, total deposits and Hong Kong dollar deposits grew by 3.2% and 0.9% respectively. RMB deposits in Hong Kong increased by 4.2% in May to RMB1,134 billion at the end of May, mainly reflecting fund flows of corporates. The total remittance of RMB for cross-border trade settlement amounted to RMB1,183.2 billion in May, compared with RMB1,257 billion in April.

Total loans and advances decreased by 0.4% in May, and decreased by 2.4% in the year to end-May. Among the total, loans for use in Hong Kong (including trade finance) and loans for use outside Hong Kong decreased by 0.3% and 0.7% respectively in May. The HKD loan-to-deposit ratio decreased to 81.4% at the end of May from 82.1% at the end of April, as HKD deposits increased while HKD loans decreased.

HKD M2 and M3 both increased by 0.4% in May and both increased by 1.5% when compared to a year ago. The seasonally-adjusted HKD M1 decreased by 0.1% in May and decreased by 8.4% compared to a year ago, reflecting in part investment-related activities. Total M2 and total M3 both increased by 1.2% in May. Compared to a year earlier, total M2 and total M3 both increased by 7.8%.

Baidu AI Cloud, a subsidiary of BIDU-SW (09888.HK) (BIDU.US) After +0.104%, announced the release of ERNIE 4.0 Turbo, which is now fully open to corporate customers, who can use its API services on the Qianfan foundation modal platform. According to the group, ERNIE 4.0 Turbo is Baidu's indigenous flagship large-scale large language model (LLM), which can be extensively used in complex task scenarios in various fields. It supports automatic docking of Baidu search plug-ins to ensure the timeliness of Q&A information, and is superior to ERNIE 4.0 in performance.

Alibaba Cloud announced that after careful evaluation and review of its global infrastructure investment planning, it will increase its investment in data centres in Southeast Asia and Mexico, and has also decided to shut down its data centre services in Australia and India. The company said that since December 2023, it has issued a number of notices and technical migration plans to its data centre customers in Australia and India. Alibaba Cloud's data centre in India will cease service after midnight Mumbai time on 15 July, and its data centre in Australia will cease service after midnight Sydney time on 30 September.

The tax allowance for Mainland residents travelling to Hong Kong and Macao to make purchases has been increased. Kevin Yeung, Secretary for Culture, Sports and Tourism, considered that the measure can boost the tourism atmosphere, and the authorities will strive to improve publicity and reception. Although the current tax allowance for travellers to Hainan amounted to RMB100,000, Hong Kong is different from other places in terms of tourism arrangements or systems and will not make comparisons, he said. Executive Council Member Jeffrey Lam anticipated that the number of Mainland visitors to Hong Kong in the second half of the year is expected to rise by 10-20%. He hoped the duty-free allowance could be raised gradually after the relevant arrangements have been sorted out.

EUROPE & US RECAP
DAX 0.14%, CAC -0.68%, FTSE -0.19%
Markets opened higher. FTSE traded sideways through the morning but sold down through the afternoon with a small bounce into the close. DAX traded in a tight range in the green through the day. CAC dipped after the open and then traded in a tight range in the red.

Stocks bounced a little after the PCE Index was perfect and another positive for the Fed lowering rates later this year. French inflation meanwhile slowed slightly in June, providing an economic boost for President Emmanuel Macron two days before the first stage of parliamentary elections on Sunday. The Insee statistics agency showed consumer prices rose 2.5% from a year ago in June, versus 2.6% the previous month. Spanish inflation also dipped to 3.5% year on year in June, from 3.8% the month prior. Italian inflation ticked up slightly, rising 0.8% from June 2023. The U.K. economy grew by 0.7% in the first three months of the year, more than initially estimated, revised figures from the Office for National Statistics showed.

DOW -0.12%, NDX -0.71%, S&P -0.41%, Russell 2K 0.46%
US markets ticked higher initially but from mid morning the markets trended lower for the rest of the session. Closing what has been a strong first half. Core PCE was in line with expectations. University of Michigan final data showed inflation expectations dropping to 3% for 3.3% in May.

AI has been a significant driver for the 1H performance; even though the past week has seen some locking in of profits. Energy names were the best performers last week along with Communication stocks. Utilities & Materials were the laggards.

Nike -20% after cutting its full year guidance; Footlocker -2% on the day.

For the first half Nvidia is the most significant gainer in the concentrated index, up 152%, while Arm up 119%. Micron Technology up 54%, while Applied Materials, KLA Corporation and Broadcom have gained at least 40% each. Constellation Energy 73% is the third-biggest winner in the index. CrowdStrike up 51%, while Meta Platforms is on pace for a 45% gain in the first half.

On the downside: Walgreens Boots Alliance has lost more than half its value. Lululemon is down 41%.

Banks JPMorgan Chase 1.55%, Citigroup 3.1% Wells Fargo 3.43%, Amex 1.38%
Ecommerce Meta -2.95%, Apple -1.63%, Amazon -2.32%, Netflix -1.38%, Disney -2.82%, Zoom Video 1.23%, Alphabet -1.84% and Microsoft -1.3%,
Tech NXP Semi 1.54%, Nvidia -0.36%, Micron -0.53%, AMD 1.72%, Skyworks 0.93%
Industrial/Discretionary Boeing -0.27%, Caterpillar 1.72%, Simon Property 1.33%, Kohl’s -0.95%, Nordstrom 0.47%, Gap -0.58%, United Airlines 0.95%, Carnival 0.59%, Wynn Resorts 0.4%
Energy Chevron 0.06%, Exxon Mobil 0.19%,
Consumer Staples Campbell Soup 0.38% General Mills -0.71%, JM Smucker 0.36%

DAILY DATA
USD weaker after perfct Core PCE data, Bitcoin at -0.22% at 60,794.99 (Sunday morning in Asia), VIX 1.63% at 12.44
US T10 up 10 bpts at 4.384% and T2 up 3 bpts at 4.747%
OIL Brent unch, WTI -0.34% as Middle Eastern concerns rise.
Gold 0.01%, Silver 0.61%, Copper 1.12% Platinum 0.28%, Palladium 5.12%.

Asian Market Sense

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