Live Markets: Is there hope for China's tech?

DiDi Global

07/07/2021 13:33

* European shares bounce back, up 0.5%
    * Miners and tech lend support, banks dip
    * Eyes on Fed meeting's minutes 
    * Nasdaq futures hit new record high

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    IS THERE HOPE FOR CHINA'S TECH? (1232 GMT) 
    With the Nasdaq on a record-breaking run and European tech
at fresh 20-year highs, the contrast with the current fortunes
of Chinese technology stocks couldn't be starker.
    The latest crackdown by Beijing on Didi hasn't only erased
$13 billion off the ride-hailing giant's market cap but it now
also risks spreading to other U.S.-listed Chinese companies,
sparking a wider sell-off.  urn:newsml:reuters.com:*:nL3N2OJ2KZ    
    The crackdown on Didi follows regulatory action against
Alibaba, Tencent and Baidu, just to name a few, and it looks
that investors are seriously concerned that China's hard stance
will impact longer-term profitability.
    But are these concerns totally justified and is there any
hope going forward? Peter Garnry, Head of Equity Strategy at
Saxo Bank, believes sooner or later the tide could turn.
    "While news sentiment and regulation are not tailwinds for
Chinese technology companies, the valuation and growth prospects
of these companies should over time pull investors back into the
fold," he says.
    "Chinese technology companies are becoming very attractive
on valuation relative to their US peers and that investors will
eventually see that valuations justify the regulatory risks," he
adds.

    (Danilo Masoni)
    *****
    
   
    BONDS AS PORTFOLIO HEDGE? JPM AM THINKS THEY'RE A "KEY RISK"
(1137 GMT)
    The reflation trade may have slowed in pace but a wave of
pent-up household savings yet to be spent is one of the factors
J.P. Morgan Asset Management (JPM AM) feels will help growth
stay strong and inflation prove "persistently troublesome". That
leads to the firm recommending investors look away from bonds in
the third quarter when they seek portfolio hedges.
    "...bonds – which are supposed to be a key source of
portfolio ballast – are actually a key risk," says JPM AM in its
Q3 markets guide released today, recommending investors look at 
alternatives, like macro funds and core infrastructure assets to
trim risk. (https://bit.ly/3wlehdN)
     Karen Ward - the firm's chief market strategist for the
EMEA region - thinks talk of tapering by the U.S. Federal
Reserve will surely louden over the summer, resulting in
sustained bond volatility.  .MOVE  
    "Ultimately, I think central banks will, at the very least,
ease off the accelerator pedal, and this will encourage bond
yields to nudge higher," says Ward.    
    She and her colleagues think strong growth and the modest
inflation backdrop will aid corporate earnings and thereby
stocks, with some sections of the equity market yet to price
this in. 
    "Despite the strong outperformance in the first half of the
year we still see the most attractive opportunities in the value
segments of the market, such as financials," they say, adding
that industrials and energy stocks generally outperform at times
of rising yields.
     Geographically, JPM AM finds European and Japanese equities
outperform the global benchmark MSCI ACWI  .dMIWD00000PUS  when
yields rise, while U.S.  .SPX  and developing world stocks
 .MSCIEF  underperform.
    
    (Aaron Saldanha)
    *****      

    
    Q2 EARNINGS: HOW MUCH BETTER IS MUCH BETTER? (0937 GMT)   
    As underlined in the last post, there's a strong feeling
across investment houses that European stock markets are priced
close to perfection and as a result there's not much upside
left, even in a best case scenario. 
    Take Q2 earnings, expectations were already sky-high but the
latest data from Refinitiv IBES shows the expected earnings
surge has been revised to 108.6% from 104.3% last week. 
    See it here:        
    For Neil Wilson at Markets.com, even "monster numbers" for
Europe Inc might fail to impress.  
    "Earnings season is coming up but it's well known we are
going to see some monster numbers and it is less obvious how Q2
reporting will drive the market higher – if anything it could
lead to a round of profit taking and recalibration", Wilson
wrote in his morning note. 
    
    (Julien Ponthus) 
    *****      
    
    
    "PAST THE REFLATION PEAK" (0917 GMT)
    Another stunning reporting season is upon us with Europe Inc
and Corporate America set to deliver Q2 profit growth of 109%
and 65% respectively but equity investors are already starting
to come to grips with the idea that the post-pandemic reflation
boom may not run ad aeternum. 
    For Barclays we are "past the reflation peak" and in terms
of sector allocation this means it's time to add some tech as a
hedge even though it still likes commodities and banks and says
it would be premature to turn overly defensive. 
    "We expect equities to grind higher in Q3, but risk-reward
is less compelling and upside potential more limited, as
catalysts have largely played out," says the UK bank.
    "Growth is peaking, Fed is moving closer to tapering,
inflation may prove sticky and COVID variants could result in
more supply bottlenecks, particularly in EM. As we transition
from recovery to expansion, risk-adjusted returns should be
lower and sector/style leadership more balanced," they add.
    
    (Danilo Masoni)
    ****
    
    VALUE, REFLATION STRIKE BACK AT THE OPEN (0732 GMT) 
    European markets at the open seem pretty determined to
reverse yesterday's risk-off moves. 
    The STOXX 600 is up about 0.6% and on track to erase the
losses of the previous session when reflation trades got a kick
in the chin as government bond yields fell. 
    Value plays and cyclical sectors such as commodities,
energy, construction and autos are leading gainers while
defensive stocks, like pharma, are trailing behind.
    The travel and leisure sector is the worst performing one,
down 0.5% as worries about the spread of the Delta variant
persist.
    Of course with investors still waiting for the Fed's
minutes, there's a lot of uncertainty moving forward but Wall
Street futures are up, indicating there's broad optimism out
there in comparison with yesterday. 
    
    (Julien Ponthus) 
    *****
    
       
    
    "OK, WHO LEAKED THE FED MINUTES?" (0645 GMT) 
    "Ok, who leaked the Fed minutes?," Sven Henrich, founder of
NorthmanTraderm, asked jokingly on twitter after markets
suddenly switched to risk-off mode yesterday.
    While one would typically expect investors to trade
cautiously a day before getting a better sense of what caused
the hawkish shift at the U.S. Federal Reserve's June meeting,
the market price action was surprisingly decisive.
    Government bond yields dropped, the dollar rose, the
reflation trade and cyclical stocks got hammered and traders
were suddenly ready to pay an extra premium for growth stocks,
particularly tech, which sent the Nasdaq to new record highs. 
    Market participants were hard pressed to find a single
catalyst for the mood swing but offered plenty of explanations. 
    COVID-19 fears (Delta variant surging), peak-growth fears
(ISM showing a cooling in U.S. services), the Chinese crackdown
on tech companies, falling oil prices (OPEC+ meeting): there was
no shortage of possible triggers.
    Another view is that the U.S. yield curve flattening, with 
U.S. 10-year notes  US10YT=RR  dropping to their lowest since
February at 1.34%, meant some investors were betting the Fed
would tighten its policy pre-emptively to head off inflation.
    There's not much left to wait before the Fed minutes are
published later on Wednesday. In the meantime, bond markets are
calmer. Stock futures in Europe are slightly positive with no
palpable sign of yesterday's stress. 
    That's good news for London's stock market, which faces a
test of its capacity to be a hub for fintech post Brexit with
the listing of cross-border payments firm Wise  IPO-WISE.L .
     
    Key developments that should provide more direction to
markets on Wednesday: 
    - Samsung Electronics flags 53% jump in Q2 profit, tops
estimates  urn:newsml:reuters.com:*:nL2N2OI2WN
    - German May industrial output -0.3% m/m in May  urn:newsml:reuters.com:*:nAPN030B00
    - Germany to sell 5 bln euros of 5-year bonds 
    - UK Halifax fall for first time since January  urn:newsml:reuters.com:*:nL5N2OI4YD
    - Japan coincident index first fall in 3 months  urn:newsml:reuters.com:*:nT9N2OD02X
    - France May current account 
    - U.S. May JOLTs job openings
    - Thai central bank monetary policy report  urn:newsml:reuters.com:*:nL2N2OJ04Y 
    - Riksbank deputy governor Henry Ohlsson talk on e-krona

    
    
    NO REBOUND ON THE HORIZON (0525 GMT)
    European futures are up a modest 0.1% about two hours before
the open and seem so far in no mood to rebound after their
retreat yesterday.
    It's still not 100% clear what caused Tuesday's risk-off
episode which also hit Wall Street and Asia overnight. 
    COVID-19 fears, peak-growth fears, Fed policy fears, Chinese
tech fears: there's a large choice of options at hand. 
    Whatever the cause however, the end result goes like this:
government bond yields are lower, cyclical stocks are under
pressure and investors are ready to pay an extra premium for
growth stocks, particularly in the tech sector.
    It's unlikely we'll a breakthrough in terms of direction of
travel until investors get the minutes from the Fed's June
meeting and get a better sense of what its recent hawkish shift
is about. 
    
    (Julien Ponthus) 
    *****

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Nasdaq record vs yields    https://tmsnrt.rs/3dNCa7u
opener    https://tmsnrt.rs/3wrdNmq
earnings    https://tmsnrt.rs/3dOEqey
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