China Cuts Import Tariffs – Amazon Workers Strike – SocGen Bearish on US Stocks
Asian stocks pick up while China cuts import tariffs and Amazon workers strike
In new data this morning, the latest flash manufacturing reading for Japan indicated the strongest improvement in the sector since March 2014, coming in at 53.8. This boost was mostly due to a flood of new orders from abroad, thanks to weakness in the Japanese Yen. Look out for similar PMI data due out of the US later today for services and manufacturing, which may push the Dollar up or down depending on the strength or weakness of the readings. After Chinese markets in particular took a hit yesterday, generally it was a more fruitful day for Asian markets this Friday. The TOPIX rose as Japan’s equity markets reopened after a national holiday, with yet more gains for Nintendo (+3.55%) and SoftBank stock (+1.40%). In Korea the KOSPI got a small boost thanks to Samsung shares rising too. The NIFTY50 in India also got a boost of +0.40% today, rallying up nearer towards the 10,400 mark. China’s finance ministry has said it will reduce taxes on imports on a selection of consumer goods from the start of next month. Tariffs will be cut from around 17% on average to 7% on products including medicines, baby products and clothes. John Liu of Bloomberg News in Asia said this morning that the changes will likely add some profits for key overseas consumer suppliers like Johnson & Johnson. This could perhaps lead to an increase in their share prices over time. This move to reduce import tariffs will be helpful in boosting Chinese domestic consumption, but is also likely to be a political statement. The reduction in barriers could be seen as a way for the government to show once again that China is an open economy to the rest of the world and a champion of free trade and globalisation. However it should be noted that the country is still highly skeptical of foreign investment and can make doing business hard for overseas firms. In other corporate news, workers at Amazon factories across Germany and Italy are planning to strike over the holiday period citing issues with pay and bonuses as well as working conditions. Beginning today and forecast to last potentially until new years eve, over 500 workers at the firms main distribution hub in Piacenza in Northern Italy will begin the action, while strikes will also be held at 6 warehouses across Germany as part of a long running dispute. Amazon released a statement claiming that its workers are among the highest paid in the logistics sector and enjoy perks such as private medical insurance, but trade unions are more skeptical. Speaking to the Financial Times, Gianluca Zilocchi, Secretary General of the Labour House union in Italy said, “We want a bonus because the company is having great results and the profits need to be distributed.” He added, “There’s also a question of rights and a suffocating climate for workers.” In the US, trading volumes will be thinner today thanks to Black Friday which also means that equity markets will close a little earlier than usual. Most investors will instead be looking ahead to next week as US tax cuts come back into focus, as the Senate’s version of the tax overhaul goes to a vote.
SocGen bearish on US stocks
Despite the Invstr community being bullish on US stock performances next year, French bank Société Générale is warning investors to be cautious. In their latest equity outlook released yesterday, the bank outlined the key risks to stocks in the year ahead and beyond. The team led by the head of European equity strategy Roland Kaloyan said, “We expect stretched valuations and rising bond yields to limit equity index performances in 2018 and the prospect of a US economic slowdown in 2020 to further cramp returns in 2019.” While the S&P500 has gained steadily throughout the year after Trump assumed office, SocGen thinks this momentum will fade. They believe upside potential for the index is ‘limited’, assuming that a rebound for growth and inflation has already been priced into the market. Their current prediction is that the S&P500 will finish at around 2,500 points at the end of 2018, which is actually lower than its current position at nearly 2,600. This decidedly bearish stance is also based partly on the fact that they are skeptical of Trump’s tax plans and its hotly anticipated effect on stock markets. The hope was that a cut in corporate tax rates from 35% to 20% would spur earnings growth to a great degree, but as they pointed out, only half the gain in the S&P500 since Trump took office has come from higher earnings. The rest is from price/earnings growth. Many of the top companies in the index pay significantly less than 35% corporate tax anyway, including Microsoft, Boeing and Facebook. In words we have heard many times from various market watchers over recent months, Société Générale warned that American stocks are overvalued, trading above their long-term average and at a level “only seen during the dot-com bubble”.
German leaders get together
Germany’s biggest opposition party under the former European Parliament President Martin Shulz has said it is open to talks to form a coalition government with Angela Merkel. After talks broke down earlier this week between Merkel’s CDU party and the Green party amongst other groups, the SPD under Schulz may offer a way to restore her power, helping to restore some stability in German politics. The Secretary General of the SPD Hubertus Heil told reporters that, “The SPD is firmly convinced that talks are needed.” The Euro traded higher against both the Pound and Dollar today, registering 4 days of gains in a row, after it dipped heavily following the controversy in the German parliament on Monday.
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