Daily Posts

Xi/Trump Meeting, Currency Manipulation (Not), Sept Trade Data

TGIF! It is a brisk windy morning! Do I dare say cold? Not ready to accept the reality of winter.

Trump and Xi will meet in late November at the G-20 in Argentina to discuss trade. Why the change after the tough talk from the US last week? 1)The WSJ made a great point that G-20 meetings are managed by the Treasury Department led by Steve Mnuchin and Larry Kudlow. 2) Recent US equity weakness, while primarily driven by higher US interest rate expectations, an element can contributed to a trade war. The US economy/multi-nationals and the IMFs recent lowering of global growth are factors though that view is open to interpretation. The US equity market had been resilient in the face of a trade war though recent weakness likely has caught the attention of 1600 Pennsylvania Ave. While higher US rates are without question the major issue for US equities (and above average valuations), an escalation in the trade war would without question hit US multi-nationals.

US Treasury will not name China a currency manipulator which we suggested yesterday was a stretch based on the strong US dollar, outperformance of renminbi relative to other currencies and China not meeting the majority of the criteria. I interpret the decision as a olive branch in advance of the Trump/Xi talks.

Sept Trade Data in CNY

Trade Balance RMB 213B versus estimate RMB 136B and Aug’s RMB 179B
Exports YoY 17% versus estimate 9.2% and Aug’s 7.9%
Imports YoY 17.4% versus estimate 15.2% and Aug’s 18.8%

Sept Trade Date in US $

Trade Balance $31B versus estimate $19B and Aug’s $27B
Exports YoY 14.5% versus estimate 8.2% and Aug’s 9.8%
Imports YoY 14.3% versus estimate 15.3% and Aug’s 20%

The Takeaway: Predicting the future is clearly difficult as the strong trade data took the market by surprise. The universal response from analysts and the media is wait for next month for the big drop. Maybe but the narrative that front running tariffs is leading to more activity holds no water. Yes US exports rose 14% year over year but Exports to India +20%, Japan 14.3%, Canada 18%, Italy 29.7%, etc. The narrative that the global economy is doing well wouldn’t sell many newspapers I suppose.

Hang Seng gained +2.12% on strong volumes and god breath with 34 advancers and 12 decliners as strong trade data, Xi/Trump and no FX manipulator label all combined for relief rally. The market was off at the open though when the trade data hit the tape we were off to the races. Tencent gained 8.01% on above average volume after hitting its 52 week low yesterday. Chatter is China’s online regulator may allow new releases which has been a major overhang on the company and competitors such as HK listed Kingsoft which gained 4.8%. Tencent accounted for 191 of the indice’s 535 point gain. Within the HK companies in the MSCI China All Shares Index, communications, real estate, tech and materials gained more than 4% with only Utilities down for the day. Short covering may have been a factor headed into the weekend. Southbound Connect volumes were slightly above average with buyers outpacing sellers. Tencent had a big volume day as mainland buyers slightly outpaced mainland sellers. HSBC had massive buying relative to sellers (770 to 3). Several HK companies had similar very high buy volumes (ICBC, Geely Auto, CCB).

Shanghai & Shenzhen gained +0.91% and +0.19% on strong volumes and poor breadth. Not a type! Decliners outpaced advancers on both exchanges which is an interesting divergence. Within the MSCI China All Shares Index mainland stocks, staples, real estate and energy gained more than 2% with utilities negative. Northbound Connect volumes were above average with foreign buyers slightly outpacing sellers. MSCI inclusion names led the volumes higher. 

An onshore broker reported that policy makers have met with industry experts on the mainland equity markets poor performance. Investor confidence is lacking due to trade war concerns and inadequate stimulus. Among the proposed remedies include tax cuts, increasing pension and insurance companies’ equity allocations.

China Daily interviewed mega Canadian pension giant Canada Pension Investment Board CEO and President Mark Machin. CPPIB plans to raise their China investments to 20% of its $612 billion plan from today’s 10% allocation by 2020. Investment focus? Healthcare. Below is a link as the interview is a worthwhile read. Click here to read the interview.

The WSJ is reporting that Tencent Music will delay its HK IPO due to market conditions. Not too surprising.

Russian cybersecurity firm Kaspersky Lab investigated Bloomberg Businessweek’s allegation of China implanting spying chips on motherboards imported into the US. The firm found no evidence of such hacking which is along with the Department of Homeland Security and the United Kingdom’s National Cyber Security Centre and both Amazon and Apple. Yes a Russian cybersecurity firm but at this point Bloomberg Businessweek should provide direct evidence and/or their 17 unnamed sources step forward. 

  • CNY 6.91
  • 10 Year Chinese Gov’t Bond Yield 3.59%
  • Commodities were firmer on both the Dalian and Shanghai.