No rest on the seventh day

Will Shanghai opt for a divine break and rest on the seventh day, having been hard at rebuilding value (okay, not the Universe) for six? More than three wise men say “no it won't and the resurrection will be sustained” and they include brothers RBS, CICC and Cabot. One or two doubting Thomases remain, including Chart Partners Group who have a technical issue at 3,000 in Shanghai (we are currently a touch under 2,880). But, overall faith prevails in this near 22% beautification since 5 July.

In secular news, the Communist Party, and its 204 man Central Committee, begins its three day Annual Assembly tomorrow and top of the list will be replacements for Wen and Hu from late 2012 and a new five year economic plan. The official growth target is not expected to be above 8% per annum; but in reality actual growth is expected to be 8.7% says the National Development and Reform Commission. By way of background noise, too, 23 retired Party officials have pushed for freedom of speech by way of a letter on the Internet ahead of tomorrow’s Assembly.

Money supply also appears plentiful, if not profligate, and Chinese banks extended a more-than-estimated Yuan 595.5 billion ($89 billion) in new local currency loans last month. Similarly, the broadest measure of money supply, M2 rose 19% in September from a year earlier. Bonds, both Government and corporate (Yuan 312 billion has been issued year-to-date), remain popular which also means yields remain tight.

Elsewhere, the Yuan is clearly out of rehab and continues to break daily records (versus 1993 and/or 2005). Last seen, too, Yuan Forwards were at 6.4362 implying a further 3.4% of appreciation over the next year. Whether this is enough to appease the Americans is another issue, however. In this context, though, it is also interesting to note a report from my cousin, Mark Williams, a senior China economist at Capital Economics. He says that profit margins for export orientated companies in China did not fall when the Yuan loosened its peg to the dollar from 2005 to 2008; and the Yuan increased in value against the US dollar by nearly 20% during that period. That said, Zhang Monan, a researcher with the State Information Center said reducing holdings of US Treasuries is China’s most-effective tool for dealing with the Americans.

“So may all your enemies perish, Oh Lord. But, may they who love you be like the sun when it rises in its strength. Then, the land had peace for forty years” - Judges 5

Shanghai Composite:
Today: +0.64% at 2,879.64 at close
(best since 28 April 2010)
This week: +5.1%
Since 5 July: +21.8%
YTD: -12.1%

Hang Seng:
Today: +1.68% at 23,852.17 at close
(best since 6 June 2008)
This week: +4.0%
YTD: +9.1%

Oil futures: $83.76
Gold futures: $1384.10
(new ‘immediate delivery’ high of $1377.15 on 14 October)
Euro/$ spot: 1.4077

HEADLINES

SHARES

• Stocks rise for a sixth day
• Global liquidity wave to boost Chinese and Asian shares, says RBS; CICC and Cabot agree

DOMESTIC

• China five year growth target will be less than 8% pa; but, in reality, more (as in the past)
• Vice President Xi urges closer economic ties with the US, says Xinhua News Agency
• Buffett-backed BYD factories confiscated
• Chinese elders call for greater press freedom ahead of 15/10 (see below)
• Communist Party annual three day assembly begins tomorrow (15 October)

YUAN, BONDS & MONEY

• Yuan rises to another record as further authorised appreciation beckons
  Yuan bond sales hit record, especially in railways
• Government bonds also popular: (i) three month bills offered at yield of 1.5704%; (ii) three year at 2.65%; and (iii) seven year at 3.1%
• Loans rise more than expected in September; with M2 - the broadest definition of money supply - up 19%
• US bill seeking to punish China on Yuan could become law, says Senator Max Baucus

REAL ESTATE

• Shanghai property share sub-Index rises most since May on the economy, and valuations on Wednesday
• Fund manager, Angelo Gordon, raises $625 million for Asia property fund focused on China
• Tianjin plans $200 million luxury yacht harbour

IRON & STEEL

• Rio Tinto maintains its 2010 iron ore forecast at 234 million tons on back of record Q3 and renewed demand from ChinaIron ore prices up 7% this month to $150.80
• Petropavlovsk's IRC wins orders for all shares in Hong Kong IPO
• India’s JSW Steel may spin off its international coal and iron ore units