TGIF! 

November Data Release Year Over Year:

Retail Sales:
8.1% versus estimate 8.8% and October’s 8.6%
Industrial Production:
5.4% versus estimate 5.9% and October’s 5.9%
Fixed Asset Investment:
5.9% versus estimate 5.8% and October’s 5.7%
Industrial Production:
5.4% versus estimate 5.9% and October’s 5.9%

Takeaway: The November economic data largely came in below estimate showing a down trajectory. The biggest surprise to me is that investors took the news so badly. Did anyone think it was going to be good? The market appeared surprised as evidenced by Friday’s poor equity stock performance which one mainland broker called “tragic”. December and potentially first quarter economic data is apt to get worse. There are two factors involved one domestic and one external 1) Domestic policy has been trying to reorient the economy away from high growth to quality growth. Rotating from debt financed growth to domestic consumption included policies curtailing property development and deleveraging SOEs. 2) The trade war effects demand from Chinese manufacturers. A significant factor in Q4 data will be tariff front running in Q3. The month over month data will continue to fall as November and likely December’s production took place in Q3. I believe this phenomenon occurred globally including Europe and the United States. Three cycles run concurrently: market cycle, policy cycle and earnings cycle. China’s equity market is at or near a bottom. Stimulus policies are in place with more coming. Earnings will bottom in Q4 ’18 and Q1 ’19. The market is forward looking and will respond in advance. What about the consumer and lower retail sales? November auto sales slumped -10% YoY which dragged retail sales down. China implemented a temporary car sales tax cut in 2016 and 2017 that expired at year end. Potential auto buyers rushed and bought prior to the tax expiration. Unsurprisingly 2018 auto sales have fallen.

Hang Seng gapped lower and then stayed range bound -1.62% as volumes fell -15% day over day in very light volumes with only 9 advancers and 41 decliners. China trade data weighed on markets which was likely exacerbated as volumes have plummeted. Tencent fell -3.08% worth -78 index points followed by China Mobile’s -3.23%/45 index points. Within the MSCI China All Shares’ HK stocks, staples and discretionary were off -0.49% and -0.93% while healthcare -4.76%, communication -3.06% and tech -2.98%. Southbound Connect volumes were moderate/light in balanced trade between buyers and sellers.

Shanghai & Shenzhen were off -1.53% and -2.46% on lower volumes and poor breadth. Within the MSCI China All Shares’ mainland stocks, utilities and energy were off -1.08% and -1.25% while healthcare -2.65%, real estate -2.53% and tech -2.31%. Northbound Connect volumes were very high in balanced trading with sellers having a slight advantage.

China announced the car tariff cut from 40% to 15% will be for 3 months.

Power generation rose 6.9% year over year for the first eleven months of the year. The measure fell slightly from October’s 7.2% rise.

• CNY 6.90

Yields stable in China. Amazing to see yields continue to drop in Japan and Europe. The former might go negative (again).

• Yield on 1 Day Chinese Gov’t Bond 1.78%
• Yield on 10 Year Chinese Gov’t Bond 3.28%
• Yield on 10 Year China Development Bank Bond 3.85%

Commodities were mixed on both exchanges