Tuesday , October 23 2018
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Things (might) fall apart

Things (might) fall apart 


Markets were muted as Trump called into question the June summit with North Korea and expressed disappointment with Chinese trade talks. Here are some of the things people in markets are talking about.

Trump Casts Doubt on Kim Summit

U.S. President Donald Trump cast doubt Tuesday on the meeting he is to have with North Korean leader Kim Jong Un on June 12 in Singapore. “There’s a chance, a very substantial chance, it won’t work out,” Trump said during an Oval Office meeting with South Korean President Moon Jae-in. “I don’t want to waste a lot of time, and I’m sure he doesn’t want to waste a lot of time,” he said. Moon’s visit to the White House comes amid renewed uncertainty about Kim’s intentions.

President Not Pleased With China Talks

The U.S. president said he is “not really” pleased with the results of U.S. trade talks with China so far. He also said that as a favor to President Xi Jinping he is reconsidering penalties that have shut down ZTE Corp., and instead may require the Chinese telecommunications company to appoint a new board of directors and pay a fine of perhaps $1.3 billion. Asked about the company, Trump said there is no deal yet with China, but it wasn’t clear whether he was speaking about ZTE specifically or about trade disputes. China has decided to cut the import duty on passenger cars to 15 percent from 25 percent.

Hon Hai’s Foxconn Unit Files to Raise as Much as $4.3 Billion

Foxconn Industrial Internet Co. plans to raise up to 27.1 billion yuan ($4.3 billion) selling stock in an IPO, the largest mainland Chinese debut since the 2015 stock market crash in Shanghai. Shares will be offered at 13.77 yuan apiece, valuing the company at about $43 billion. The smart-factory unit of Hon Hai Precision Industry Co. will float 1.97 billion shares in Shanghai, it said in a filing with the Shanghai Stock Exchange. It’s part of a push by billionaire Terry Gou to position the company even more centrally in the global tech supply chain and lessen its dependence on Apple Inc. for more than half its revenue.

Chinese Call for a Baby Boom

China hasn’t even abandoned all its decades-old birth-control policies and some executives and academics are already calling for new programs to encourage bigger families. High costs and a shortage of day care centers in China can act as birth control all by themselves. “Only by fully removing birth limits and encouraging births will it be possible for China to reverse its population decline,” Liang Jianzhang, chairman of the travel site Ctrip.com, and Huang Wenzheng, a researcher with the Center for China and Globalization, in Beijing, wrote in an op-ed Tuesday on the 163.com news portal. They were responding to a Bloomberg News report Monday that China was considering scrapping the last remnants of its population control policy. “The cry for a total abolition of birth restrictions has been there for years, but resistance is strong,” economist Ma Guangyuan wrote to his 2.6 million Weibo followers in a post that was later deleted. “In fact, even now, lifting the birth limits is too late.”

Markets Muted Ahead of Fed Minutes

As Hong Kong and South Korea return from a day off, we will see what traders made of Tuesday’s grim pickings. Italian and emerging-market risks have weighed on markets, which were muted in the U.S. after Trump called into question a summit with North Korea. The dollar fell with Treasuries, as the greenback’s correlation with yields threatens the currency’s five-week rally. The Turkish lira sank to yet another record low, and sterling strengthened on speculation there could be another U.K. election. Emerging-market shares advanced, halting a three-day decline. Wednesdayin the U.S., the Fed will release minutes from its last meeting.

What we’ve been reading

This is what’s caught our eye over the last 24 hours.

And finally, here’s what David’s interested in this morning

Which countries have the most to lose if China starts exporting less to the United States? For Nizam Idris of Macquarie, the list is Taiwan, South Korea, Singapore and Malaysia. These are the four countries that provide the highest value-added boost to products that China eventually ships to the U.S. Quick 101 on the value-added concept, just in case: Think of it as the incremental enhancement that a product undergoes as it makes its way through the various pit stops across the global supply chain. The iPhone is the perfect example. The LCD screen comes from country X, the battery comes from Y, and the casing comes from Z. China puts the device together and ships it off. While the value of the iPhone when it’s shipped is, say, $500, China can only take credit for part of that amount. To figure out the rest, we work our way back up the supply chain in almost the same way you would work back up on an income statement through cost of goods.

Anyway, the thinking is fairly straightforward — everything that comes from China these days will likely have input from somewhere else. Last Monday, the biggest gainers across Asia were Apple-related names. When the news flow turns negative, we see the opposite. As you follow this back and forth between and Washington and Beijing these next few months and years, keep in mind this dispute is about much more than just those two countries. See chart below.


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