aurora
There’s growing evidence that China is encouraging state-owned property developers to take market share from stressed rivals to limit the spread of contagion from the debt-stricken industry.
Officials in Guangdong province are facilitating meetings between struggling developers and SOEs to encourage mergers and acquisitions, Cailian reported. Shares of real estate firms rebounded in afternoon trade, with Shimao Group Holdings Ltd. seeing a record one-day gain of 19 percent. Still, Modern Land (China) Co. fell 40 percent after resuming trading for the first time in nearly three months.
Separately, a deadline looms for bondholders to vote on China Evergrande Group’s plan to delay an option for early repayment on one of its yuan-denominated bonds. An online meeting held by the property developer’s onshore unit Hengda Real Estate for holders of the note is due to conclude Monday.
There’s US$1.42 billion of bond payments due this week among stressed builders, Bloomberg calculations show.
US inflation rate is probably going to spike again: eco week
Bloomberg
US inflation probably hit the fastest in four decades, helping explain a shift in the Federal Reserve’s approach to monetary policy as well as more consumer anxiety about the economy.
The widely followed consumer price index on Wednesday is forecast to rise 7.0 percent for the year through December and climb 0.4 percent from a month earlier. The following day, another Labour Department report is projected to show prices paid to producers surged nearly 10% in 2021. Reports on December retail sales and industrial production arrive Friday.
The inflation surge underscores why US officials are preparing for a quicker normalisation of monetary policy than previously anticipated. Adding to the case is evidence of a tight labor market, including a jump in wages and falling unemployment in data on Friday.
Fed watchers may get more clarity in the coming week on whether the interest-rate liftoff may come as soon as March, and when the central bank will begin shrinking its US$8.8 trillion balance sheet.
Chair Jerome Powell testifies Tuesday before the Senate Banking Committee on his nomination to a second four-year term. Two days later, Fed Governor Lael Brainard appears before the same panel at a confirmation hearing on her elevation to vice chair. Other Fed officials set to speak include Loretta Mester, Esther George, Charles Evans and James Bullard.
Elsewhere, inflation data may show weakening Chinese price pressures, Germany will give an indication of its growth in the last quarter of 2021, and both South Korea and Romania are likely to keep tightening monetary policy.
Asia
Sri Lanka hosts a visit by Chinese Foreign Minister Wang Yi this weekend as the country mulls whether it might need to ask the International Monetary Fund or Beijing for help as its currency reserves run low.
South Korean jobs figures come ahead of a Bank of Korea interest rate decision on Friday, with some economists now predicting a back-to-back hike by Governor Lee Ju-Yeol.
China releases price data midweek that could offer more evidence that inflationary pressure has peaked there for now. By contrast, Indian inflation is expected to pick up again.
China’s trade figures at the end of the week are set to show a new annual export record as Beijing sticks to a Covid-zero strategy that keeps its factories open, taking advantage of recovering global demand. The Bank of Japan gives its assessment of the health of the country’s local economies ahead of a policy meeting the following week.
Europe, Middle East, Africa
Joachim Nagel’s first full week as Germany’s Bundesbank president will be marked by a virtual handover event on Tuesday featuring his predecessor, Jens Weidmann, Finance Minister Christian Lindner, and European Central Bank President Christine Lagarde.
Meanwhile, on Friday, an official German estimate of 2021 full-year growth will offer the first indication in the Group of Seven of expansion for the fourth quarter, following news that industrial production there unexpectedly shrank in November. How that drop impacted overall euro zone factory output will be seen in data on Wednesday.
Friday will also be a highlight in the UK, where monthly gross domestic product and industrial data for November will be released, probably showing a fourth consecutive increase.
Euro region inflation remains a hot topic after a surprise acceleration reported on Friday. ECB Executive Board member Isabel Schnabel said Saturday that the continent’s green energy transition may mean “inflation remaining higher for longer.”
Eastern Europe will be a hot spot for monetary policy action. Romania’s central bank is likely to raise interest rates on Monday, while decisions are also due on Thursday in Serbia and Hungary.
Figures from Ghana due on Wednesday are expected to show inflation accelerated to 12.5 percent in December, exceeding the top of the central bank’s 6 percent to 10 percent target range for a fourth month. Even so, officials may hold off on raising rates as they wait to see whether November’s 100-basis point increase arrests inflation.
Turkey’s current-account balance data on Tuesday is likely to show a swing to deficit in November in the absence of a significant boost from tourism. Turkey posted a surplus for three months before November thanks to a jump in trade and balance of services.
Latin America
Mexican industrial production figures for November, out Tuesday, may add to evidence that Latin America’s No. 2 economy is falling into a recession.
The December reading on Brazil’s consumer prices is widely expected to show inflation has peaked, and ended 2021 slightly below the central bank’s 10.2 percent central forecast. Getting it back to target won’t happen until the third quarter of 2023 at the earliest, the bank now projects.
Mexico’s labor market has been on an upswing, although it remains below pre-pandemic levels. Ongoing weakness in services employment will likely weigh on December formal jobs data reported Wednesday. In Brazil, the services sector has also been struggling and November data due on Thursday will likely show activity slowed for a sixth month.
Look for Argentina’s consumer price report for December on Thursday to show a marginal easing from November’s 51.2% pace. The trajectory for 2022 inflation will owe much to the timing of a new loan accord with the IMF that sets targets on government spending and debt.
Inflation, rising interest rates and high household debt have soured the sentiment of Brazilian consumers. Sidelined shoppers have many analysts looking for a fourth month of negative prints in the retail sales data posted Friday.
China health stocks post worst start in six years as woes deepen
Chinese health-care stocks took another battering last week in the worst start to the year since 2016, as selling resumed amid worries over Beijing’s plans to cut medical costs and set out stricter drug development rules.
The CSI 300 Health Care Index plunged 5.5 percent in the first week of trading, more than double the broader mainland benchmark, driven by biotech and pharmaceutical names. Losses were led by Asymchem Laboratories Co. Ltd., which fell 19 percent last week, its biggest decline on record.
A year-long sweeping regulatory crackdown on private enterprise ranging from technology giants to property developers has also hit health-care firms. They are contending with unexpected shifts in research and development policies as well as drags on profit from drug price cuts. The sector now trades at 33 times 12-month forward price-to-earnings ratio, from nearly 55 times in February last year.
The decline also tracks the S&P 500 Health Care Index, which tumbled 4.7 percent last week as rising bond yields weighed on demand for companies yet to make a profit.
“Beijing’s policy uncertainty remains an overhang for the sector,” said Mia He, an analyst at Bloomberg Intelligence. New regulatory measures including oncology drug development guidances have put some pressure on biotech companies and firms providing contract services to drug makers since the second half of 2021. That’s made investors “sensitive to unexpected policy updates,” she added.
Those draft guidelines released last year have worried investors because of the potential to slow down drug approvals and set a higher bar on innovative drugs.
The sector was also caught in the crossfire of an escalation in Sino-US tensions last month. Shares tanked as investors speculated that the firms may be added to the US’s list of sanctioned entities, and they haven’t fully recovered even though they weren’t included in the list in the end.
Investors should expect continued short-term volatility from potential major policies in the first quarter shaping clinical trial practices, Citigroup Inc. analysts including John Yung wrote in a January 5 note. However, pharmaceutical names may have “bottomed out” and could see a recovery in their valuations on the back of new product launches, clinical developments and potential mergers and acquisitions, they said.
A rare bright spot is the traditional Chinese medicine sector led by Beijing Tongrentang Co., after those firms’ drugs were included in the nation’s medical insurance. That’s a reflection of the industry being a source of national pride that counts Xi among its supporters.
But whether the rally can be sustained remains questionable, says Citigroup, as the sector may see a growth slowdown in the future due to the lack of new products. – Bloomberg
Bongani Ndlovu