October 31, 2023

Cos Leos

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Japanese government bond yields push near 1% on hints of BoJ easing

6 min read

China’s manufacturing contracts in October, adding to momentum worries

A textile factory in Huimin county, Shandong province. China’s economy has this year grappled with a disappointing rebound from Covid-19 policies © Chinatopix via AP

China’s manufacturing activity contracted in October, an official gauge showed, adding to concerns over growth momentum in the world’s second-largest economy.

The country’s official manufacturing purchasing managers’ index was 49.5 this month, compared with 50.2 in September. A reading of 50 or over marks expansion against the previous month.

China’s economy has this year grappled with a disappointing rebound from the ending of Covid-19 policies, as well as a slowdown across its economically-critical real estate sector.

Tuesday’s data reverses a shift into expansion in September, which had followed five consecutive months of contraction.

Samsung forecasts AI-driven rebound in memory chip market

Samsung Electronics expects the memory market to rebound next year, forecasting on Tuesday that artificial intelligence applications will drive chip demand despite a slowdown in the global economy.

“In 2024, while macroeconomic uncertainties are likely to persist, memory market conditions are expected to recover,” the world’s largest memory chipmaker said.

The upbeat outlook comes after the South Korean company reported third-quarter net profits of Won5.8tn ($4.3bn), a 38 per cent drop from a year earlier but much higher than the Won2.5tn forecast by analysts polled by Bloomberg.

The company’s operating loss from the semiconductor business narrowed to Won3.8tn in the July-September quarter. That compared to a Won4.4tn loss in the previous three month period.

Australian pension fund opposes Origin takeover by Brookfield-led group

Origin logo
AustralianSuper, which owns a 13.7% stake in Origin, has joined other shareholders in arguing that the offer for the energy company made last November is too low © Jason Reed/Reuters

Australia’s largest pension fund has said it will vote against the Brookfield-led takeover of energy company Origin after it said an offer of $11.9bn substantially undervalues the business. 

AustralianSuper owns a 13.7 per cent stake in Origin, having increased its holding in recent weeks. The fund has joined a number of shareholders in arguing that the offer for Origin made last November is too low.

The value of Origin’s stake in UK business Octopus has partly fuelled the demand for a higher offer.

Toronto-based Brookfield teamed up with US investor EIG to take Origin private and break up the business. It requires 75 per cent of shareholders to approve the offer. 

Californian label Daou sold to Australia’s Treasury Wine Estates for $900mn

Penfolds wine
Penfolds owner TWE has been investing in the US as part of a restructuring of its assets since China imposed punitive tariffs in 2020 © Jason Reed/Reuters

Treasury Wine Estates, the Australian producer behind Penfolds, has agreed to pay $900mn for Californian luxury brand Daou Vineyards. 

TWE has been investing in the US as part of a restructuring of its assets since China — previously the largest market for Australian wine — imposed punitive tariffs in 2020. 

A further earn-out of $100mn has been included as part of the deal to acquire what TWE said was the fastest growing luxury wine brand in the US over the past year. 

Shares in TWE were halted on Tuesday as part of a fundraising to finance the deal. 

What to watch in Asia today

Events: Many Asia-Pacific cities celebrate Halloween, but Seoul will be cautiously marking a year since a surge of revellers resulted in 151 deaths and more than 80 injuries. Tokyo’s busy Shibuya district has imposed a policy of no alcohol in the streets, amid fears of a similar crush. Anime Tokyo Station opens in the Japanese capital’s Ikebukuro district. The Association of Japanese Animations and the Tokyo metropolitan government earlier this year signed an agreement to open a landmark facility devoted to the Japanese visual art.

Central banks: The Bank of Japan will conclude its two-day policy meeting and release fresh quarterly growth and inflation forecasts, while the Reserve Bank of New Zealand issues an activity report.

Economic indicators: Japan announces unemployment figures for September. China issues official manufacturing purchasing managers’ index data for October. South Korea releases industrial production and retail sales for September. The ANZ New Zealand business confidence index for October is available.

Corporate results: Foxconn Industrial Internet and Yum China are among companies reporting third-quarter data. Indian telco Bharti Airtel and Japan’s Daiichi Sankyo, Denso, Japan Tobacco, Mitsubishi Electric and Mitsui & Co announce second-quarter earnings.

SolarWinds sued by SEC after 2020 breach by Russian hackers

The SolarWinds headquarters in Austin, Texas
The US Securities and Exchange Commission filed a complaint against SolarWinds, accusing the company of misleading investors by not disclosing ‘known risks’ © Suzanne Cordeiro/AFP via Getty Images

SolarWinds, the IT company breached by Russian hackers as part of a sprawling espionage campaign in 2020, has been sued by the US Securities and Exchange Commission.

The SEC on Monday filed a complaint accusing the company and chief information security officer Timothy Brown of misleading investors by not disclosing “known risks” and not accurately representing its cyber security measures.

“We allege that, for years, SolarWinds and Brown ignored repeated red flags about SolarWinds’ cyber risks, which were well known throughout the company and led one of Brown’s subordinates to conclude: ‘We’re so far from being a security minded company,’” Gurbir Grewal, director of the SEC’s enforcement division, said in a statement.

S&P upgrades Ford as cost cuts expected to offset new labour contract

S&P has upgraded Ford to investment-grade territory, citing the carmaker’s improving margins and expectations that its cost reduction programme would “more than offset higher labour-related costs”.

In a Monday update, the rating agency moved Ford up to triple-B minus from double-B plus.

Ford reached a tentative agreement last week with the United Auto Workers union that would increase member wages by 25 per cent over four years, following a historic 40-day strike against the traditional Big Three domestic car manufacturers.

S&P’s move comes after Fitch raised the company to investment grade status in September.

Moody’s lifted the company to the highest notch of junk territory in July.

Bank of Canada rate-setting group ‘has not started’ discussing when to cut

Tiff Macklem, governor of the Bank of Canada, left, and Carolyn Rogers, senior deputy governor
Tiff Macklem, governor of the Bank of Canada, left, and Carolyn Rogers, senior deputy governor, walk to a meeting of the House of Commons finance committee in Ottawa on Monday © David Kawai/Bloomberg

A top Bank of Canada official has said that the central bank’s monetary policy setting body has not yet discussed when to start cutting interest rates.

Once the bank is confident that inflation is coming down and remains at those levels, “we would start thinking about lowering interest rates, but we’re just not there yet,” senior deputy governor Carolyn Rogers told the country’s House of Commons on Monday.

The BoC’s “governing council has not started talking about when we’ll reduce interest rates”, she said.

The bank held its key interest rate at 5 per cent last week because officials want to give monetary policy time to cool the economy and relieve price pressures, BoC governor Tiff Macklem told lawmakers.

S&P 500 notches biggest gain in two months as Fed meeting looms

Wall Street stocks closed higher and oil prices dropped at the start of a week of closely watched economic data, with the upcoming Federal Reserve rate decision front and centre.

The benchmark S&P 500 closed 1.2 per cent higher for the gauge’s biggest one-day gain since late August. The tech-heavy Nasdaq Composite also gained 1.2 per cent.

In government debt markets, Treasury yields also edged up — signalling a drop in prices. Brent crude oil fell roughly 3 per cent to remain below $90 a barrel.

Markets are currently pricing in the likelihood that the Fed will keep rates unchanged in a range of 5.25-5.5 per cent when it announces its policy decision on Wednesday.

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