Markets Overview

Most of the Asian markets closed with modest moves.  After a weak start, the indices managed to work back higher before lunch or just after in the case of Japan.   Mainland China drifted into the close to finish flattish.  A blip higher occurred just after 1:00 EST on headlines the Tory leader from Scotland, Ruth Davidson, will resign in protest of PM Johnson’s policies.  The move is expected to cost the Tories 12 votes in the next election.  Hong Kong and other markets that overlapped with Europe improved on two key bits of news.  First, a spokesperson for China’s Ministry of Commerce made less antagonistic, supportive trade comments.  The indication was China would not impose new tariffs in a quid, pro, quo with the States.  Secondly, a press conference was announced regarding formation of a new Italian government.  More on this later.

Asian sectors were split.  Real estate was a standout to the downside off c. 0.8% (See China Evergrande in Corporate section.)   Financials, telcos and industrials gave ground small.  Healthcare improved by c. 0.5% followed by consumers staples and energy.

On the Hong Kong protest front, a large rally and march is planned for Saturday.  Police are expected to ban the event.  Early in the session, it was noted fresh troops are replacing those stationed near Hong Kong and Macau.  Apparently, this is performed about the same time each year.  However, today’s announcement is making people go hmmmmmmmmm.

On the economic front,  S. Korean department and discount stores saw a turndown during July.  The BoK is expected to hold its 7 day repo rate at 1.5% tomorrow.   Following the CNY2T tax cut enacted earlier this year, China expects tax revenues will fall y/y.  That would be the first such occurrence since 1968.

Despite the PBoC setting the Yuan reference price at a stronger than anticipated level for the 7 consecutive session, currency markets continue to see it decline.  This marks the 11th consecutive session of weakening and is the longest such streak according to official data maintained since 2007.

Europe initially had a sluggish start.  However, that changed following the Chinese statements and the Italian news.  Pres. Mattarella officially hands Guiseppe Conte the mandate to form a government.  He is expected to create a coalition with the center-left Democratic Party.  He will attempt to do so without the populist Five Start Party and avoid snap elections.

All sectors in Europe are to the upside.  Basic resources are better by 2% with a slew of others improving more than 1%.  Those include construction, telecoms, chemicals, banks and personal goods.  Insurance, retail and utilities lag but are still in the green more than 0.5%.

The debt markets are seeing most yields moving higher.  However, Italy is the exception with the Italian 10 yr. yield lower by another 8 basis points.

Corporate Headlines

• Toyota-flat and Suzuki +1.5% following the stake swaps we flagged yesterday.
• China Construction Bk’s -0.5% 1H NI is better by 4.9% y/y but light of consensus. Weaker net interest margin results were cited despite the NPL ratio ticking a bit lower.
• China Evergrande’s -5.9% H1 core profit is lower by a whopping 45.0% y/y.  The loss was expected following preliminary earnings that highlighted the drop.  However, total debt grew to $113.5B.  Bloomberg indicated that is the biggest debt load of any non-financial firm in China.  The rising debt burden, a government that is trying to put a lid on price increases and the company’s foray into the electric car business raise cash balance worries.
• The Taipei Times reports South Korea has signed contracts with LCD maker Innolux +1.65% as the Japanese material ban produces ripple effects.
• Macquarie -0.8% & Recruit Holdings -4.8% following the placements, also flagged yesterday.
• After the local close, Olympus announcing it will purchase a 5.03% stake Sony holds for ¥80.4b.   Several important Hong Kong Listings reported earnings after the close: CNOOC, ICBC and Petrochina.
• BASF +1.8% is green.  The company is selling its colors & effects unit to DIC Corp.
• Bouygues’s +6.1% H1 OP is better than consensus by 14.0%.  While earnings at its construction unit are lower, both TF1 and the telecom divisions saw strong growth.
• Pernod Ricard +2.9% shareholders are uncorking champagne bottles.  The company is seeing strong Chinese demand with sales there better by 21.0%.  Recurring earnings are higher by 8.7%, the best gain in 7 years.  The icing on the cake is a €1b buyback.
• Micro Focus -25.3% is cutting its FY revenue guidance to a range of declining 6-8% vs. its prior outlook of a fall between 4-6%.
• Recruiting firm Hays -0.7% is experiencing moderating revenues in the key U.K. and German markets.  Jefferies sees the EPS and special dividend inline with expectations.

On Our Side of the Pond

• Treasury Sec. Mnuchin signaled he has no intention to intervene in the currency markets.  He added any such move would be in tandem with the Federal Reserve and other central banks.  He also says he is giving the issuance of a 100 yr. bond “very serious consideration.”
• Keep an eye on discount retailers following a profit warning from Ollie’s Bargain.  The company is slashing its FY sales view below the range.   Dollar Tree and Dollar General are on the tape.
• Other earnings this morning include: Abercrombie & Fitch, Best Buy and TD Bank.  Dell Tech out after the close.
• Way south of the border, Argentina intends to extend current short term debt instrument maturities.  This is an attempt to support the Argentine Peso and currency reserves.
• Initial jobless claims due.

Markets & Macro