Daily Posts

Liu He & Steven Mnuchin/Robert Lighthizer Call; November New Loans/Financing/M2 Released

Hope all is well!

The Ministry of Commerce reported that Vice Premier Liu He had a phone call with Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer to arrange the next round of trade talks. With 79 days to go they should get moving! It is rumored that the first purchases of US soybeans will occur with the estimate between 5mm to 8mm tons. I would expect LNG will be next on the purchase list. Bloomberg is reporting China will cut its car import tax from 40% to 15%.

New Loans in CNY:
1,250 billion versus estimate 1,150B and Oct’s 697B

Aggregate Financing:
1,519 billion versus estimate 1,350B and Oct’s 728B

M2 YoY:
8% versus estimate 8% and Oct’s 8%

Takeaway: Policy makers are running a balance of deleveraging SOEs while allowing credit to flow to private enterprises. This month’s data provides a mixed sign this is occurring as the large change month over month was driven by October’s week long national holiday. The trend all three releases has been lower suggesting tight monetary conditions. A mainland bond broker voiced concern overnight that private companies are still having difficulty accessing bank loans. There is chatter of an interest rate cut coming as a stimulus measure though flow of credit to private enterprises would be far more effective. Regardless of a trade war, policy makers are going to have to step on the stimulus gas.

Hang Seng pulled a James Bond gaining 0.07% on anemic volumes with 22 gainers and 24 decliners. Tencent gained +1.04% worth 26 of the indice’s 19 point gain while China Mobile declined -1.62% worth -23 index points in a choppy quiet day of trading. Tencent Music’s IPO will be pricing soon which is helping Tencent. Tencent is actually spinning off some Tencent Music shares which is interesting since the former is listed in HK and the latter will list on the NYSE. Within the MSCI China All Shares’ HK stocks, tech gained 2.36% while healthcare +1.72%. Healthcare has been weighed on heavily due to a pilot drug buying program from 11 cities. The “winning” bids were 60 to 90% lower than current market prices making for a pyrrhic victory for those companies. Southbound Connect volumes were light with buyers outpacing sellers. Tencent experienced heavy buying 8 to 1.

Shanghai & Shenzhen gained +0.37% and +0.85% on very light volumes and strong market breadth as mainland investors cheered news of the Liu Mnuchin call more so than their HK counterparts. Within the China All Shares’ mainland stocks, real estate led the way higher +2.92% after strong than anticipated November sales were released. Healthcare, communications, staples and discretionary rose 1.57%, 1.2%, 1.08% and 1.02% while energy lost -0.2%. Northbound Connect volumes were light with buyers slightly outpacing sellers.

The important China Economic Working Conference will begin on December 14th. The CEWC sets the economic goals for 2019. I had thought it might be pushed to the end of the month to better ascertain the trade talks.

I ran across an interesting article that noted 621 mainland mutual funds have been liquidated in 2018 versus 176 in 2017. Regulatory changes led to a large number of fund launches in recent years though the large liquidation is an indication of investors’ poor sentiment.

November car sales fell 18% to 2mm. The drop is driven by the purchase front loading that took place from 2015 to 2017 due to a tax cut that has since expired. I would suspect car sales will be down for another year though it shouldn’t be read as a consumption slowdown.

CNY 6.90; currency has given up its gains post-G 20.

  • Yield on 1 Day Chinese Gov’t Bond 1.70%
  • Yield on 10 Year Chinese Gov’t Bond 3.29%
  • Yield on 10 Year China Development Bank Bond 3.81%

The China Bond Rally of 2018 continues. The 10 Year Yield started 201 at 3.89% while 1 Day 2.5%.

  • Yield on 1 Day Chinese Gov’t Bond 1.75%
  • Yield on 10 Year Chinese Gov’t Bond 3.27%
  • Yield on 10 Year China Development Bank Bond 3.76%

Commodities were off on both the Shanghai & Dalian future exchanges.