The Opening Belle - Markets Drifting, Oil Down, Bitcoin Selloff Pauses

Profits at China’s industrial firms grew in October for a sixth consecutive month and at their quickest pace since early 2017, pointing to a steady recovery in the manufacturing sector after it was hard hit by the COVID-19 pandemic.

Profits at Chinese industrial firms surged 28.2% year-on-year in October to 642.91 billion yuan ($97.79 billion), National Bureau of Statistics (NBS) data showed on Friday, after rising 10.1% in September versus the previous year.

That was the biggest monthly profit growth since Jan-Feb 2017. The NBS combines the results for January and February to exclude distortions caused by the week-long Lunar New Year.

Zhu Hong, a senior statistician at the NBS, said the sharp jump was helped by rising investment income. It also came from a low base in October 2019, Zhu said.

China’s industrial sector has seen an impressive recovery from the coronavirus fallout, helped by resilient demand for the country’s exports. Premier Li Keqiang said on Tuesday he expects Chinese economic activity to return to a reasonable range next year.

For the January-October period, industrial firms’ profits rose 0.7% on an annual basis, after falling 2.4% in the first nine months of 2020 compared with the same period last year.

That growth was driven by the equipment manufacturing and the electronic sectors, while the auto manufacturing sector also saw a steady recovery in profits, Zhu said in a statement.

Liabilities at industrial firms rose 6.8% on-year at end-October, versus a 6.6% growth as of end-September.

Earnings at China’s state-owned industrial firms were down 7.5% on an annual basis for the first ten months, compared with a 14.3% on-year decline in the January-September period, the statistics bureau data showed.

Private sector profits grew 1.1% on-year in the January-October period, compared with a 0.5% decline in the first nine months.

The industrial profit data covers large firms with annual revenue of over 20 million yuan from their main operations.

Core consumer prices in Tokyo suffered their biggest annual drop in more than eight years, data showed on Friday, an indication the hit to consumption from the coronavirus crisis continued to heap deflationary pressure on the economy.

“Consumer prices will continue to hover on a weak note as any economic recovery will be moderate,” said Dai-ichi Life Research Institute, which expects nationwide core consumer prices to fall 0.5% in the fiscal year ending March 2021.

The core consumer price index (CPI) for Japan’s capital, which includes oil products but excludes fresh food prices, fell 0.7% in November from a year earlier, government data showed, matching a median market forecast.

It followed a 0.5% drop in October and marked the biggest annual drop since May 2012, underscoring the challenge policymakers face in battling headwinds to growth from COVID-19.

The slump in fuel costs and the impact of a government campaign offering discounts to domestic travel weighed on Tokyo consumer prices, the data showed.

Japan’s ruling party will urge the government to lay out a big, decade-long spending programme to promote green investment, a draft proposal obtained by Reuters showed on Friday, a nod to Prime Minister Yoshihide Suga’s carbon emission goals.

The government should create a fund with a size “comparable to global standards” that supports companies investing in green technology, the Liberal Democratic Party (LDP) said in the draft proposal, without suggesting a specific figure.

“By deploying all policy means available, the public and private sectors must work together to achieve zero carbon emission in 2050,” it added, calling for deregulation and tax breaks to promote green investment.

The proposal also urged the government to take steps to promote electric vehicles and battery development, and called for expanding or creating new state-backed loan and loan guarantee schemes to support firms hit by the COVID-19 pandemic.

The proposal suggests incentives to promote green investment will be among key pillars of the package, along with spending to cushion the immediate economic blow from COVID-19.

“It seems (the new package) will clearly be different from just providing support to cope with the pandemic,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“There will be an increasing number of measures with an eye on a post-COVID society,” he said.

Ruling party executives have called for compiling an extra budget worth around 20-30 trillion yen ($192-$288 billion), which will fund part of the stimulus package.

Sony warns it could move factories over Japanese energy policy

Sony has warned the Japanese government it may have to shift manufacturing out of the country unless rules on renewable energy are relaxed, as it tries to meet the green energy promises of customers such as Apple, according to a minister.

The comments from chief executive Kenichiro Yoshida underscore the pressures Japanese businesses are under to erase the carbon footprint of their manufacturing facilities as Apple, Facebook and other technology groups seek to shift their global supply chains to 100 per cent renewable power.

Sony’s concerns were echoed by the chief executives of Ricoh, the electronics company, cosmetics business Kao and fund manager Nissay Asset Management during a meeting with Taro Kono, Japan’s minister for administrative reform, earlier this month.

“They told me it’s very difficult for them to purchase renewable energy in Japan. The quantity is limited and the price is very high,” Mr Kono said in an interview with the Financial Times. “So they told me either we do something about renewables or they have to move out of Japan.”

“The restrictions currently imposed in Europe – had they been adhered to widely – should have resulted in a 20% to 30% drop in activity. Instead, as our real-time measurements show, we observe a drop of only around 12%,” Rystad said in a note.

Oil slipped from seven-month highs on Thursday as signs of growing supplies helped to halt a rally driven by optimism that COVID-19 vaccines will revive fuel demand.

Brent futures had risen to nearly $50 a barrel this week after three major pharmaceutical companies announced progress on vaccines that could start to be rolled out before the end of the year.

But Brent was down 74 cents, or 1.5%, at $47.87 a barrel by 1650 GMT on Thursday, having dropped as much as $1. The contract gained about 1.6% in the previous session.

West Texas Intermediate (WTI) crude fell 66 cents, or 1.4%, to $45.05 after gaining 1.8% on Wednesday.

The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia are leaning towards delaying next year’s planned increase in oil output to help the market weather the COVID-19 second wave and rising Libyan output, three sources close to OPEC+ said.

“Tomorrow traders will start positioning themselves for next week’s OPEC+ meeting. The consensus among analysts is a three-month extension of the current ceiling, anything less than that will trigger a sharp sell-off,” said Tamas Varga, analyst at PVM Oil Associates.

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In the nearest he has come to a concession, Republican Trump said if Biden is certified the election winner by the Electoral College he will depart the White House. Biden is due to be inaugurated on Jan. 20.

The Electoral College is due to meet on Dec. 14.

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The long-awaited Facebook-led digital currency Libra is preparing to launch as early as January, according to three people involved in the initiative, but in an even more limited format than its already downgraded vision.

Libra’s exact launch date would depend on when the project receives approval to operate as a payments service from the Swiss Financial Market Supervisory Authority, but could come as early as January, the three people said. Finma said it would not comment on Libra’s application, which was initiated in May.

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