Is China finally getting serious?

Thoughts of the Day

Chinese President Xi’s reported talks with financial regulators reflect concerns over the market’s persistent weakness. Restrictions on short-selling announced by China’s securities regulator boosted confidence and helped indices bounce from the lows. However, more concrete measures may be needed to sustain the recovery and improve investor sentiment.

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Day Ahead

Nothing noteworthy on the horizon today.

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What Happened Yesterday

Market Movements as of New York Close 6 Feb 24

Fedspeak:
Kashkari (2026 voter, known hawk):
“Not done yet on inflation, but data looks positive.”
Mester (current voter, known hawk): “It would be a mistake to move rates down too soon or too quickly without sufficient evidence that inflation was on a sustainable and timely path back to 2%. There is no need to rush. Expect Fed to gain confidence to cut “later this year””
(Kashkari is starting to sound more dovish than before. Mester is still as hawkish.)

The Reserve Bank of Australia kept its cash rate unchanged at 4.35%, as widely expected. The central bank noted that although cost pressures in Australia were subsiding, inflation remained elevated due to the slow decline in service prices. It cautioned that further hikes in interest rates might be necessary, emphasising that future rate adjustments would be guided by incoming data and an ongoing evaluation of risks. The bank also expressed its aim to ensure inflation falls back within the 2 to 3% target range by 2025, aiming for the midpoint by 2026. Officials underscored their commitment to vigilantly observe global economic developments, domestic demand trends, and forecasts for inflation and the job market. The AUD appreciated +0.36% against the USD from 0.649 to 0.651 following the decision.

The US Treasury Yield curve inversion widened to 0.30% as the US 2-year bond yield fell -0.07% to 4.39% while 10-year yield decreased -0.08% to 4.09%.

The US stock futures rose steadily through the Asian trading hours with the S&P 500 futures rising +0.23% to a peak of 4971. However, it started to retrace during the London session with the S&P 500 futures falling -0.33% from the highs to 4954. But it soon bounced +0.30%, back to 4969 just before the New York session began.

The US stock market opened slightly higher from Monday. It then traded within a range despite the comments from Fed officials. As a result, the S&P 500 rose +0.23% (high: +0.30%, low: -0.16%), the Dow Jones gained +0.37% (high: +0.43%, low: -0.08%) while the Nasdaq slipped -0.23% (high: +0.38%, low: -0.78%). 

Snap (NASDAQ: SNAP) plunged -32.66% as its earnings report shows that it is struggling to compete against larger rivals for digital advertising revenue. Revenue: $1.36 billion vs $1.38 billion expected.

The crypto market remained quiet with the major cryptos making small gains on the day.
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Headlines & Market Impact

China regulator announces more curbs on short-selling

Notable Snippet: China’s securities regulator said on Tuesday it would suspend brokerages from borrowing shares for lending and cap the size of the so-called securities re-lending business, as part of further efforts to curb short-selling.

The watchdog will also ban securities lending to investors who sell stocks on the same day of purchase, and vowed to crack down on illegal arbitrage using short-selling.

Chinese authorities have announced a raft of measures to support share prices after the market (.CSI300)  plunged to five-year lows last week as confidence wanes in an ailing economy.

The fresh measures came a day after the China Securities Regulatory Commission (CSRC) vowed “zero tolerance” against malicious short sellers, warning those who dare flaunt the law will “lose their shirts and rot in jail”.

The CSRC said on Tuesday that no new business would be allowed for securities re-lending, in which brokerages borrow shares and lend them to clients for short selling. Existing businesses would be gradually wound up.

Soon after the CSRC announcement, mutual fund companies including China Asset Management Co, E Fund Management Co and Southern Asset Management said they would suspend lending shares and phase out securities re-lending. Brokerage Huaxi Securities Co also said it would stop lending shares for short selling.

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UBS resumes buybacks, seeks more cost savings from Credit Suisse takeover

Notable Snippet:  UBS (UBSG.S) said on Tuesday it would restart share buybacks and find $3 billion more in cost savings from integrating Credit Suisse, as the bank signalled a tougher next phase for absorbing its rival after underwhelming fourth-quarter results.

Shares in the bank dropped as much as 4%, with analysts pointing to slightly lower-than-expected profitability targets as revenue at the lender falls before the cost savings are achieved.

UBS’s shotgun takeover of Credit Suisse last March was the first-ever merger of two global systemically important banks, and UBS has since managed to avoid any major ructions, with its share price jumping some 50%.

The bank declared the first phase of the integration complete on Tuesday, but there remains a long way to go, with trickier stages still to come including thousands of job losses and the combining of different IT systems. UBS CEO Sergio Ermotti said progress over the next three years would not be “measured in a straight line”.

“There is a significant amount of restructuring and optimisation that must take place over the next 3 years before we can harvest the full benefits of the combination,” he said.

UBS said it now expected $13 billion in cost savings by the end of 2026 – with half of it to come from slashing headcount, UBS Chief Financial Officer Todd Tuckner said. UBS had previously set a goal of more than $10 billion.

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World’s biggest chipmaker TSMC to open second Japan factory with backing from Sony, Toyota

Notable Snippet: Taiwan Semiconductor Manufacturing Co. on Tuesday said it will open a second manufacturing plant in Japan with backing from technology giant Sony and automaker Toyota.

Japan Advanced Semiconductor Manufacturing Inc., the manufacturing operation majority-owned by TSMC, will begin building the new factory this year and aims to bring it into operation by the end of 2027.

TSMC said the overall investment in JASM, factoring in a first facility that is set to begin operation this year, will exceed $20 billion. The figure includes the contributions of other venture partners.

The expansion of TSMC’s operations in Japan highlights the Japanese government’s push to onshore manufacturing of semiconductors, which go into everything from cars and smartphones to military weapons and are seen as critical components in technology, such as artificial intelligence.

Japan is looking to regain some leadership in the semiconductor arena.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord