DAX:
- No major movers
MDAX:
- Fuchs Petrolub (FPE3 TH) -1%
SDAX:
- LPKF (LPK TH) +1%
- Heidelberger Druck (HDD TH) +0.7%
- Deutz (DEZ TH) +0.6%
- Synlab (SYAB TH) -1.5%
Stocks dipped Wednesday and Treasuries edged up as investors assessed the economic implications of the omicron coronavirus outbreak. Shares slipped in Japan, technology stocks drove a retreat in Hong Kong and China slid. U.S. futures fluctuated after the S&P 500 and the Nasdaq 100 weakened Tuesday, snapping four sessions of gains. Volumes remained thin into the end of the year in some markets. Sentiment in China is being sapped by Beijing’s tightening oversight of overseas share sales and economic risks from a property slowdown. Authorities are expected to add stimulus next year to steady expansion. A key gauge of interbank funding costs in China fell to the lowest level since January after the nation’s central bank added more cash to the financial system to ease a seasonal surge in liquidity demand.
Elsewhere, Elon Musk continued to offload Tesla Inc. stock, selling just over $1 billion of shares.
US After Hours Quiet after hours; CALX jumps +7.4% as it get added to S&P MidCap 400; CALM -7.4% falls on weak earnings
Nikkei -0.56% Hang Seng -1.11% CSI -1.36% Shanghai -0.84% Shenzen -0.72%
Eur$ 1.1304 CNH 6.3726 CNY 6.3714 JPY 114.88 GBP 1.3428 CHF 0.9174 RUB 73.7408 TRY 12.0850 WTI$ 76 Gold 1807 BTC 47,900 ETH 3805
S&P +0.16% Nasdaq +0.36% EuroStoxx -0.13% FTSE +0.60% Dax -0.12% SMI +0.14%
Macro :
- Inflation Surge Puts U.K. on Track for the ‘Year of the Squeeze’
- Another Bond Coupon Payment Deadline Passes: Evergrande Update
Macro :
- Inflation Surge Puts U.K. on Track for the ‘Year of the Squeeze’
- Another Bond Coupon Payment Deadline Passes: Evergrande Update
- Dollar’s Best Days Look Numbered as Funds Rush to Front-Run Fed
Keep an eye on :
- AAL LN : Anglo American Confirms Preliminary Talks With Vale on Iron Ore
- BPE IM : BPER Banca Signs Workforce Optimization Pact With Trade Unions
- DAI GY : Mercedes Swept Up in China Internet Furor Over Model’s Eyes
- DAI GY : Mercedes Swept Up in China Internet Furor Over Model’s Eyes
- EDP PL : EDP Sells Three Brazil Transmission Assets to Actis
- ECV GY : Encavis Buys Remaining 19.99% in Spain Solar Park from Statkraft
- FRA GY : Fraport-TAV Group Signs Concession Deal for Antalya Airport
- GEST SM : Gestamp Automocion CFO Resigns Effective Dec. 31
- JD YS : JD.com Board Authorizes Increase of Share Buyback Size to $3b
- TEP FP : Teleperformance to Buy Senture for $400 Million
- TSLA US : Elon Musk Sells $1.02 Billion Worth of Tesla Shares
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China’s Luxshare builds iPhone megaplant to challenge Foxconn
Chinese assembler makes aggressive bid to expand in Apple supply chain
Luxshare Precision Industry is building a massive manufacturing complex in eastern China as it aims, with Apple’s blessing, to break the decade-long hold that Taiwanese rivals Foxconn and Pegatron have on iPhone assembly.
Luxshare, China’s most prominent player in the Apple supply chain, is building a 285,000 square metre manufacturing park in Kunshan, Jiangsu province, with a total investment of Rmb11bn ($1.72bn). The sprawling site, covering an area the size of 40 football fields, will churn out millions of iPhones as early as next year.
The sheer scale of the project is a sign not only of Luxshare’s ambitions but also of Apple’s growing reliance on Chinese suppliers, a trend that could reshape the global tech supply chain in the long run.
Wingtech, another rising Chinese tech manufacturing powerhouse, recently entered Apple’s supply chain and won orders to make the Mac mini and Apple TV, multiple sources familiar with the matter said. Apple also added BOE Technology to its list of premium display suppliers for new iPhones this year.
In addition to the new complex, Luxshare has also leased and remodelled an adjacent facility that was previously owned by iPad assembler Compal Electronics, according to company filings and government environmental assessment papers seen by Nikkei Asia.
Luxshare is set to complete the first phase of its new complex around the middle of 2022, according to the construction floor plan and government documents obtained by Nikkei Asia.
Armed with the new facility, the Chinese supplier aims to significantly increase its share of iPhone assembly, from about 6.5m units in 2021 to between 12m and 15m units by as early as next year, people briefed on the matter told Nikkei Asia. Luxshare at present builds iPhones in another facility in Kunshan that it bought from Taiwan’s Wistron in the summer of 2020.
Apple ships about 200m iPhones a year, with Foxconn assembling nearly 60 per cent of those and Pegatron about 30 per cent.
“I went on a business trip nearby and saw Luxshare’s new manufacturing complex. I am shocked by the scale of the complex and the possible capacity it could build for iPhones,” an Apple supplier executive told Nikkei Asia. “The day it threatens Foxconn and Pegatron might arrive earlier than people’s estimate judging from the progress of the new facility.”
An executive at another Apple supplier said that although this has been the first year for Luxshare to officially build new iPhones on its own, the company’s assembly performance rate is improving faster than expected and industry peers should not underestimate it.
Luxshare and the Kunshan city government held a groundbreaking ceremony in late October. Now, a steady stream of cranes and excavators move in and out of the construction site throughout the day. Thousands of workers have been brought in to speed up construction, several on-site workers told Nikkei Asia.
“There are around 2,000 to 3,000 workers on site. The building we are working on will be four floors and we have been asked to finish construction of the factory before the end of this year,” one of the on-site workers told Nikkei in early December. “We are currently building the second floor and the schedule is very tight, so we are working overtime every day.”
Another worker told Nikkei Asia they know this is a facility for smartphone manufacturing and said they have been asked to complete phase 1 around April next year.
The total investment for the project has reached Rmb11bn, including leasing and remodelling the old Compal facility, and it could generate sales of more than Rmb100bn, according to government announcements and documents. It will eventually have a total of 39 production lines.
The Kunshan city government said it took three days to approve the record-breaking high-tech investment and grant four important licences, including the construction licence, adding that the schedule for construction has been pushed forward by two months from the original plan.
Grace Wang, co-founder and chair of Luxshare, said in a speech in October that it was thanks to the Kunshan government that construction could start so quickly. “It’s hard to imagine that the four key licences can be approved in such a short period of time if we had not personally experienced and witnessed it ourselves,” she said.
Luxshare, which shoulders Beijing’s hopes for building a homegrown contract electronics group like Foxconn, is the fastest-growing tech manufacturer among Apple suppliers in terms of product portfolio. It has gone from being a small supplier of connectors in Apple’s supply chain back in 2011 to become the most important China-based components supplier and assembler for the AirPods earphone series, Apple Watch and iPhone.
The Chinese tech champion has already expanded its manufacturing footprints to India and Vietnam, where it helps Apple make components and assemble AirPods, and has even ventured into semiconductor assembly to help Apple package and test chips used in its wireless earphones.
Jeff Pu, a veteran tech analyst with Haitong Securities, told Nikkei Asia that Chinese tech manufacturers such as Luxshare and Wingtech have long served domestic smartphone makers such as Xiaomi, Oppo and Vivo and now need to expand their market share and seek new growth opportunities, including by targeting the Apple supply chain.
“Many Chinese manufacturers, including Luxshare, not only could offer lower prices but also are highly flexible and could offer agile adjustments to meet Apple’s requests, which is what [Apple’s chief executive] Tim Cook values highly . . . They are among the earliest to build manufacturing plants in south-east Asia to help Apple diversify production to avoid US tariffs,” said Pu, referring to tariffs slapped on Chinese goods under former president Donald Trump. “Not to mention they definitely have good government support when it comes to building new plants in China.”
Foxconn is still the undisputed leader in terms of manufacturing capability and operation management, and is always Apple’s key partner for new products, Pu said, but Chinese manufacturers such as Luxshare are already reaching a level — in terms of technology and financial performance — that could directly compete with other smaller suppliers like Pegatron and Wistron.
Apple declined to comment for this article. Luxshare and Wingtech did not respond to Nikkei Asia’s request for comment.
Streaming wars drive media groups to spend $115bn on content
The top eight US media groups plan to spend at least $115bn on new movies and TV shows next year in pursuit of a video streaming business that loses money for most of them.
The huge investment outlays come amid concerns that it will be harder to attract customers in 2022 after the pandemic-fuelled growth of 2020 and 2021.
One entertainment executive called the planned expenditures, which the Financial Times calculated based on company disclosures and analyst reports, “mind boggling”. Including sports rights, the aggregate spending estimate rises to about $140bn.
“There is no turning back,” said media analyst Michael Nathanson of MoffettNathanson. “The only way to compete is spending more and more money on premium content”.
But most of the companies — including Walt Disney, Comcast, WarnerMedia and Amazon — are set to rack up losses on their streaming units, and subscriber growth has slowed in the past few quarters.
Closing Stock Market SummaryThe S&P 500 decreased 0.1% on Tuesday after setting an intraday record high above the 4800 level early in the day. The Nasdaq Composite (-0.6%) and Russell 2000 (-0.7%) underperformed in negative territory, while the Dow Jones Industrial Average (+0.3%) rose modestly.
The session started with a carryover of positive momentum, with some attributing updated COVID-19 guidance from the CDC as a supportive factor. The public health agency shortened the recommended isolation time for asymptomatic people with COVID-19 to five days from 10 days.
Seasonal factors also lent support, but the market appeared to be running on tired legs. Entering the session, the S&P 500 was up 4.9% over the prior four sessions while the Nasdaq Composite and Russell 2000 were up nearly 6.0% over the same period. Selling interest was kept in check, though, on this low-volume day.
Seven of the 11 S&P 500 sectors closed in positive territory with the utilities sector (+0.9%) claiming the top spot with a 0.9% gain. The information technology sector (-0.6%), which led the market higher yesterday, slipped into the laggard position with a 0.6% decline.
The technology sector was pressured by losses in Apple (AAPL 179.20, -1.13, -0.6%), Microsoft (MSFT 341.35, -1.13, -0.3%), and the semiconductor stocks. The Philadelphia Semiconductor Index fell 1.2%.
Travel stocks saw some relief following the updated CDC guidance on the hope that there will be less Omicron-related disruptions. On a related note, Booking Holdings (BKNG 2386.91, -7.60, -0.3%) CEO told CNBC that he thinks the travel recovery will continue in 2022, even with the Omicron variant.
Value stocks in general fared better than their growth-stock peers. The Russell 1000 Value Index increased 0.2% while the Russell 1000 Growth Index fell 0.5%.
In the Treasury market, the 2-yr yield rose five basis points to 0.75% while the 10-yr yield settled unchanged at 1.48% after trading at 1.46% intraday. The U.S. Dollar Index increased 0.1% to 96.14. WTI crude futures increased 0.6%, or $0.45, to $76.01/bbl.
Reviewing Tuesday's economic data:
- The S&P Case-Shiller Home Price Index increased 18.4% yr/yr in October ( consensus 18.7%) following a 19.1% yr/yr increase in September.
- The FHFA Housing Price Index increased 1.1% m/m in October following a 0.9% increase in September.
Looking ahead, investors will receive Pending Home Sales for November, the weekly MBA Mortgage Applications Index, and the Advance November reports for Intl Trade in Goods, Retail Inventories, and Wholesale Inventories on Wednesday.
- S&P 500 +27.4% YTD
- Nasdaq Composite +22.5% YTD
- Dow Jones Industrial Average +18.9% YTD
- Russell 2000 +13.8% YTD
After Hours Summary: Quiet after hours; CALX jumps +7.4% as it get added to S&P MidCap 400; CALM -7.4% falls on weak earningsAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: None
Companies trading higher in after hours in reaction to news: CALX +7.4% (to join S&P MidCap 400), PL +1.6% (stock offering), ENS +0.1% (announces integration of its ABSL Lithium-ion batteries into the NASA Webb Telescope launch)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: CALM -7.4%
Companies trading lower in after hours in reaction to news: MTRX -9.1% (to be removed from S&P SmallCap 600), MARA -0.6% (announces deal with Bitmain to purchase an additional 78,000 Miners for $879.1 mln)
Bull market heads into New Year on a shaky foundation
A lot needs to fall into place for equities to post double-digit return for fourth year in a row
Imagine you’d stuck your money into a fund tracking the MSCI World Index a year ago and then disappeared into a news blackout for the duration.
You’d now be emerging to find that you had made a return of around 20 per cent. If you’d gone for the North America index, that number would be more like 25 per cent. Not bad. You’d be pretty pleased — and if asked what financial conditions you’d like to see in 2022, you’d say more of the same. Until you looked at the news. At which point you might change your mind.
We did not see the obvious conditions for a stock market advance in 2021. It was a year of rolling global lockdowns — vaccines that were supposed to see us return post haste to normal life turned out not to work quite as well as we hoped. They reduced serious illness but did not prevent infection and we were constantly constrained as a result.
It was also a year in which both US and UK budget deficits soared to 1945 highs, public debt levels climbed sharply (to not far off 100 per cent of gross domestic product in the UK — the highest since 1963) and central banks continued to buy vast amounts of their own governments’ debt. At the same time energy prices rose (even coal doubled in price), a large ship blocked the Suez Canal for a bizarrely long time, most industries suffered from supply crunches, labour became hard to find and inflation made a dramatic comeback.
In the UK, the retail price index (not the official measure of inflation but the one with the longest record) hit 7.1 per cent — the biggest annual rise for more than 30 years. The consumer price index is at 5.1 per cent. In the US it is 6.8 per cent and in Germany 6 per cent. There was a time when the Bank of England said CPI would peak at 4 per cent and then fade away. They don’t say that any more. There was good stuff too (for markets at least).
As governments shovelled money in almost every pocket they could find and central banks offered apparently limitless monetary policy support in the form of super low rates and money printing, GDP rebounded sharply — nearly all developed economies have recovered to levels close to their pre-Covid peaks.
Earnings did the same: current estimates suggest that US corporate earnings growth will come in at 43 per cent for 2021 (in the UK that number is 73 per cent). If the market is as much a momentum machine as anything else, perhaps this year’s stock market returns make some sense.
Even so, we end the year with valuations high in the US at least. On a cyclically-adjusted price/earnings ratio, the US market is more overvalued than in 1929, 1973 and 2007. Inflation is rising, central bank stimulation fading and Omicron is upsetting the already fragile apple cart. Not exactly the Goldilocks scenario is it?
What then might have to happen for you to reasonably think you might get a double-digit equity market return in 2022 — for the fourth year in a row? A lot. The key thing to think about is how market conditions can change for the better to justify rising prices.
For that to happen you will need Covid to be recognised as an endemic and manageable virus that is a background to policy rather than the full focus of it. This is possible, given the increasing evidence that the Omicron variant is milder than the last and that anti-viral pills are soon to be widely available.
But, with the current default to policy panic, it is not a given. You will need momentum to pick up in the global economy as a result. This too is possible as corporates and consumers are both flush with cash. But the signs aren’t brilliant. In the US, both consumer and manufacturing sentiment is weakening. In the UK, the latest GDP numbers are far from encouraging (third quarter economic growth has been revised down to 1.1 per cent).
You also need inflation to start to fall, something that looks fairly unlikely given that energy prices are still rising fast and the labour market remains very tight. You need central banks to find a way to take action without making nasty policy mistakes. I wouldn’t bet on this one — they are out of practice. And you need rising profits (to bring down valuation without share prices falling) when earnings are already at record highs as a per cent of GDP in the US, costs are rising across the board and there are new corporate taxes coming which won’t exactly help.
The relative case for equities — that they are at least cheap relative to bond yields — also won’t last long when bond yields start to rise. You might note that the US market was also relatively undervalued compared with US bonds at the top of the 2007 peak, one of the worst ever periods to invest in stocks say the analysts at Ned Davis Research. None of this would matter if we knew that money would keep flowing into markets regardless.
But that is far from a given: as the analysts at Deutsche Bank point out, the end of monetary stimulus after a decade of enthusiastic quantitative easing programmes does mean the end of “free money” for markets. And rising bond yields could easily push what money there is into fixed income.
Add all this up and 2022 looks like it comes with an unusually wide range of possible outcomes. They might, just might, come together to give you more of the same. But the risks are very high — 2022 might be less dangerous for your health than 2021, but I suspect it might be more dangerous to your wealth.
Inditex/family business: they flourish if they do not go Gaga
Family-controlled companies tend to take a cautious approach to risk and plan for the long term
Blood ties and business ambitions can make a volatile combination. At the extreme end of the spectrum is the grimly entertaining family infighting depicted in the movie House of Gucci. This stars Lady Gaga as the arriviste cuckoo in the nest.
The bad and the ugly in family business is accompanied by much good, albeit that the latter does not produce compelling Hollywood plot lines. Companies that remain in family control tend to take a cautious approach to risk and to plan for the long term.
Thus investors may be worrying unnecessarily over Inditex’s plan for Marta Ortega to chair Spanish fast-fashion group Inditex. The 37-year-old daughter of founder Amancio Ortega will replace Pablo Isla, 57, a career manager who has overseen the Zara owner for 10 years.
Visionaries who pass on businesses they have founded are in a minority. For every company that the second generation takes over, at least two go into other hands.
The world’s 500 largest family-owned groups generate $7tn in annual revenues and employ 24m people, according to research by EY and the University of St Gallen. More than three-quarters of them are over 50 years old. They perform better on environmental and social metrics than governance issues, according to EY’s Helena Robertsson.
That helps to explain why there are few big listed family businesses in Britain where governance rules are strict. The Rubins, who run sports brand group Pentland, and the Coates, who own Bet365, prefer to keep tight control. The contrast with Asia, continental Europe and the US is stark. There, many big family-controlled businesses feature on national exchanges, including Ford, LVMH, BMW and Samsung.
Public market investors quite reasonably fear that bosses chosen for their DNA rather than their MBAs may lack the intelligence or drive to do a good job.
The countervailing upside is that family-controlled businesses — which need not be run by a family member — are often more stable than the other kind. Notable examples are Schroders and Associated British Foods in the UK and Walmart in the US. Ortega will hopefully show that under her leadership Inditex belongs to the same dependable group.
Data: attempts to trade information like any other commodity fall short
Products on Shanghai Data Exchange are not only limited but also have multiple restrictions
If data is the new oil it makes sense for market makers to set a price. But the existing market is horribly rigged. Those acquiring data, including governments and tech giants, pay next to nothing. Suppliers give it away gratis. China’s new data exchange, launched with minimal fanfare in Shanghai, is attempting to change this dynamic.
Past attempts to create a market in data have had little success. Pre-internet shopping catalogues and supermarkets running loyalty cards gathered information on shoppers but lacked the means to analyse it in detail before selling it on to third parties.
The volume of data created complicates the issue. Oil comes in a few easy to categorise varieties, data do not. Crude data, neither aggregated nor in a readable form, are of limited use.
US data storage company Seagate, which has shipped three zettabytes and counting of storage, reckons there will be 175 zettabytes of data by 2025. That is three times last year’s 59 zettabyte tally. One zettabyte is 8,000,000,000,000,000,000,000 bits, each of which is just 10-30 nanometres (billionths of a metre) wide on storage media. This resides in servers and devices across the globe, governed by a patchwork of rules and regulations aimed, in part, at protecting consumers. Some jurisdictions require it to be held onshore, for example.
None of this is conducive to market making. The newly minted Shanghai Data Exchange is long on ambition. It seeks to resolve knotty issues of pricing, determining rights and supervision. Yet it launched with fewer than two dozen products from mostly state-owned companies. Transactions, at least initially, will be one-on-one.
Creating order and forming a marketplace for data is logical considering the world has done the same for pork belly, tulip bulbs and cryptocurrencies. But broader scope is required. Not only are products on the Shanghai Data Exchange limited, there are multiple restrictions. Buyers will need to explain how they intend to use the data they buy. China’s data market looks more like oversight than the beginning of free market enterprise.