Trade of the Day: Asian shares flat, European stocks and US futures edge up; US Treasuries and gold advance
Quote of the Day: “With continued policy reforms and extensive commuter railways, we believe the average population of China’s five key city clusters – Yangtze River Delta; Jing-Jin-Ji Area; Greater Bay Area; Mid-Yangtze River Area; and Chengdu-Chongqing Area – will reach 120 million by 2030 (vs. 109mn today), close to Japan’s current population,” said Morgan Stanley in a report about how China is reshaping its urbanization strategy. “The five key city clusters will account for about 75% of GDP growth and half of the urban population increase in 2019-30. This, combined with continued smart-city tech adoption, could lift China’s urbanization ratio to 75% by 2030 (vs. 60% today), fueling productivity growth through increased urban agglomeration effects and allowing China to attain high-income status by 2025.”
Stock of the day: Panda Green Energy bonds continue to trade at 93/95 cents on the dollar even after the company announced an exchange days ahead of its redemption. Rating agencies often consider these exchanges signs of corporate distress. S&P downgraded the company on Wednesday to CC, two notches above default, but the bonds held steady as investors expect the company to finalize a share purchase agreement with Beijing Energy Holding and the new parent to provide financial support to repay the notes.
Number of the Day:. 1 in 5 – The chances of a global recession. The odds have receded, according to IHS Markit Chief Economist Nariman Behravesh, from 30% in the summer. Global growth is expected to stabilize at a rate of 2.5% in 2020 before edging up to 2.7% in 2021, according to HIS Markit.
Tip of the Day: “Server DRAM prices to increase in 1Q20 along with the recent rise in NAND prices,” said analyst CW Chung, while raising the target price of Nomura’s BUY recommended stocks Samsung Electronics and SK Hynix. “Following NAND prices increases that began in 4Q19, we believe server DRAM prices will likely increase from 1Q20F. Server DRAM prices have fallen to the cost level of 20nm DRAM in 4Q19, but we expect to see increases in prices earlier than we had expected, as the inventory of memory companies is quickly declining because customers are preemptively procuring inventory ahead of a price upturn. Accordingly, the spot price has been trending upwards since last week and has shown a golden cross pattern with the contract price.” Nomura has projected a target price of KRW67,000 for Samsung Electronics and KRW136,000 for SK Hynix, rises of 19% and 46% over the current levels.
Asian shares meandered, clinging on to their recent gains after strong US data boosted sentiment and lifted Wall Street stocks to record highs. Risk appetite continues to be robust on the back of a phase one deal between the United States and China which would help cool the 18-month old trade war between the world’s two biggest economies. Adding to the upbeat mood have been the positive data emerging from the United States and the expectations the US Federal Reserve will be on hold as policymakers continue to sound dovish. Reflecting this optimism are the findings of a survey that showed global corporate profits are expected to accelerate over the next 12-months for the first time since August, 2018, and the trade war resolution will trigger a full capex cycle taking the global PMIs back to prior highs.
MSCI Asia-Pacific ex-Japan was flat, hovering around peaks last struck in mid-2018. Japan’s Nikkei eased 0.4% after hitting a year-high. Hong Kong’s benchmark, the Hang Seng index, edged up 0.2% with the gains in the energy, banks and technology sectors offset by retreating shares in consumer and healthcare sectors.
Futures on the S&P 500 Index were slightly higher and the Stoxx Europe 600 Index rose 0.1%. But the British pound continues to struggle as Prime Minister Boris Johnson’s comments sparked worries about a hard Brexit.