It has been a night of relentless and pervasive disappointing economic data from just about every point on the globe: first the Chinese HSBC manufacturing data was well short of expectations (50.2 vs. Exp. 50.5), which was promptly spun as bullish and a reason for more stimulus by the PBOC even though the central bank has been constantly repeating it will not engage in western-style shotgun easing. Then Japanese wages, household spending and industrial production came in far below expectations – in fact at levels which suggest Japan is once again in a recession - which once again was spun as bullish, because the BOJ has no choice but to do more of the same failed policies that have made Abenomics the laughing stock of the world. Finally, moments ago Europe reported the lowest inflation data in 5 years, as well as core CPI sliding to just 0.7%, and which was, wait for it, immediately spun as bullish for risk as once again the local central bank would have “no choice but to ease.” In other words, thank god for horrible news: because how else will the rich get even richer?
As DB summarizes, in terms of the latest from Hong Kong, the government has withdrawn riot police from the streets as protestors began to calm down. Still that has not deterred tens of thousands of people from pouring into the Central/Admiralty district on Monday night although in comparison with the heated street clash on Sunday evening the mood has been rather peaceful over the last 24 hours. Protests are still ongoing on Tuesday morning as we type although the crowds are smaller. But again this has become somewhat of a routine over the last few days, where protestors tend to diminish during the day but return in the evening and stay throughout the night. The event has attracted international headlines and attention from the West although China is seemingly taking a firm stance on this.
Indeed a spokeswoman from the Foreign ministry has said that Beijing “vehemently objected to illegal actions that undermine the rule of law and social security,” adding that any international intervention in China’s matters was also unacceptable?. These came just before comments from Britain’s call for “constructive talks” and hopes that it would eventually lead to ?a meaningful advance for democracy?. A White House spokesman has also urged Hong Kong authorities to “exercise restraint” and protesters to “express their views peacefully”. Chinese authorities have also tightened its grip on social media with the number of restricted Weibo (a Twitter like service) posts increasing fivefold between last Friday and Sunday SCMP. Instagram has also been banned in China.
Looking ahead, a bigger crowd is expected to flood the streets leading up to China’s 1 October National Day Holiday on Wednesday. Pro-democracy organisers have also set a Wednesday deadline for a response from the government to meet their demands for reforms and for him to step down as a leader of HK AP. S&P has said that the protests have minimal implications on HK’s AAA/Stable rating in the near term unless the situation deteriorates severely. The rating agency says HK’s economic performance could be modestly affected but the impact on Hong Kong’s banking system is manageable. Clearly this is still a ‘live’ situation so developments in HK and how it will ultimately be managed by the authorities will be closely watched.
Turning to markets, the Hang Seng (-1.2%) is extending its losses for the fourth consecutive day now and has broken past what is thought to be a support level of 23,000 for the index. Interestingly Chinese equities are faring relatively better (Shanghai Composite -0.1%) despite further data weakness. The final September HSBC Chinese manufacturing PMI index came in at 50.2, versus an initial reading of 50.5 a week ago. Elsewhere in Asia, bourses in Korea, Taiwan and Japan are down -0.5%, -0.2% and -1.2%, respectively. A stronger JPY is perhaps adding pressure to the local markets. Asian IG credit spreads continued to lead 2-4bp wider across the board. That said Indonesia USD bonds is seeing some intraday support with the benchmark 2024 bonds largely unchanged as we go to print.
In Europe, equities trade firmer across the board, with the Spanish IBEX-35 leading the way after Madrid postponed Catalonia’s independence bid. The FTSE-100 slightly underperforms as UK retailer Next warned that the warm weather at the end of September dented its sales growth at the end of Q3, and the Co. may have to revise guidance lower. As such, Next shares fell sharply, and dragged down Marks & Spencer with it, countering the upside in RBS shares today, which rose as the Co. are seen significantly outperforming their guidance due to lower impairment costs.
