This morning feels like a NYC January morning!

• CPI         1.9% versus estimate 2.1% and Nov’s 2.2%
• PPI         0.9% versus estimate 1.6% and Nov’s 2.7%

Takeaway: Within the PPI mining, raw materials and manufacturing had saw big month over month declines which should be no surprise as weak commodity prices and the trade war. Within the CPI, consumer goods saw a slight month over month decline while services were flat. Remember that tariff front running led to 12 months of imports and exports to be compressed into the first six months of 2018. If you were going to import soybeans from the US or export washing machines to the US, would you do it pre-tariff? Of course! That led to a lot of economic activity pre-tariff. This is leading to a slump in second half activity which should surprise nobody. CPI and PPI do allow the PBOC and policy makers to provide monetary and fiscal stimulus without having to worry about inflation.

Hang Seng overcame a lower open to gain +0.22% on moderate volumes that were down -15% day over day in balanced breadth with 22 gainers and 22 decliners. AIA had a strong day gaining +1.37% worth 33 of the index’s 59 point gain. Within the MSCI China All Shares’ HK stocks, healthcare had a very strong day gaining +4.98% as a major pharma company had a new drug approved and a providence bought pharma drugs at market price and not at the 11 city bulk buying price. Investors have been concerned that the prices dictated by the 11 city pilot program would set market prices. The caveat is the providence involved is home to several major pharma companies. As a FYI the Hang Seng has 1 healthcare stock versus the All China’s 17 which is why I prefer the latter. Tech had a strong gaining +2.48% followed by staples and discretionary +1.61% and +1.4%. Southbound Connect volumes were moderate/higher with sellers outpacing buyers though Tencent saw 2 to 1 buying as the day’s volume leader.

Shanghai & Shenzhen bounced around a narrow range to end -0.36% and -0.27% on moderate volume’s that declined 17% day over day while breadth was tilted negative. Positive trade talks and tax cut were overshadowed by the CPI/PPI release though markets are in need of breather. Within the MSCI China All Shares’ mainland stocks, tech was higher +1.26% while all other sectors were positive by a slim margin. How can markets be down if all sectors up? CNY’s 0.5% appreciation versus the dollar was greater than the daily movement. In local/CNY, real estate was off -1.01% on no news. Northbound Connect volumes were moderate/higher with buyers outpacing sellers by slim margin.

The State Council announced a $30B tax cut for small and micro companies driven by lower tax rates based on revenues.

84 more games were approved though neither Tencent nor Netease had titles included.

Reuters had an excellent article on Volkswagen’s $91B electric vehicle push which will be heavily aimed at China. VW CEO Herbert Diess is quoted in the article “The future of Volkswagen will be decided in the Chinese market”. VW’s capital commitment compares to Dailmer’s $42B and GM’s $8B.

CNY 6.78! DXY is off -2.28% since mid-December as dollar has weakened broadly.

Ground hog day as the front of the curve picks up though back and belly of the curve continues to rally.

• Yield on 1 Day Chinese Gov’t Bond 1.66%
• Yield on 10 Year Chinese Gov’t Bond 3.10%
• Yield on 10 Year China Development Bank Bond 3.66%

Commodities were mixed on both the Dalian and Shanghai exchanges