Hope you had a great weekend! Winter has officially arrived here in NYC as it is COLD! One observation: all fashion goes out the window when it gets this cold. Self preservation is job one!

December Trade Data in CNY Year over Year

• Exports 0.2% versus estimate 6.6% and Nov’s 10.2%
• Imports -3.1% versus estimate 12% and Nov’s 7.8%
• Trade Balance 394B versus estimate 345B and Nov’s 306B

Trade Data in US $ Year over Year

• Exports -4.4% versus estimate 2% and Nov’s 5.4%
• Imports -7.6% versus estimate 4.5% and Nov’s 3%
• Trade Balance $57B versus estimate $51B and Nov’s $44B

Takeaway: These are the numbers that will be front and center today. As we have repeatedly stated here, tariff front loading moved a majority of 12 months worth of goods into the first half of 2018. Economic data and corporate earnings are apt to have a weak second half which was evident in China’s December trade data. Import data includes commodities which have experienced weak prices thus a lower number. China’s exports in December were weak to the US and EU though strong to Canada and Russia. The most surprising to me is that anyone was surprised by December’s weakness! Analysts completely missed which is shocking. Something no one will be mentioning are the 2018 export and import numbers which look good to me. In mainland China there was a headline “China’s Foreign Trade Hits Historic High in 2018”. One of our research firms noted that exports only account for 14% of the industrial sector’s revenues. It will be interesting if analysts, who got scorched on the trade data, dial down their expectations for next week’s data dump on retail sales/GDP/Industrial production/FAI.

2018 Trade Data in US $ Year over Year

• Exports 9.9%
• Imports 15.8%
• Total Export & Import 12.6%

2018 Trade Data in CNY Year over Year

• Exports 7.1%
• Imports 12.9%
• Total Export & Import 9.7%

Hang Seng lost -1.38% on light volumes and poor breadth with only 5 advancers and 44 decliners as China’s export/import data weighed on the market. Within the Hang Seng’s -368 point loss, Tencent lost -2.84% worth 76 index points despite an upgrade from Bernstein to outperform though HSBC was off -1.3%/-33 index points and -4.68%/-31 index points. Weekend news that a Poland based Huawei executive was arrested for spying did not help sentiment. While the company does not face any charges, Poland is the company’s biggest European customer. Within the MSCI China All Shares’ HK stocks, energy lost -2.86% on weaker crude prices though discretionary -2.48% on weaker autos and home appliances, communications -2.21% driven by Tencent’s move and healthcare -1.83% on weaker pharma names. Southbound Connect volumes were light with sellers outpacing buyers 2 to 1.

Shanghai & Shenzhen were off -0.71% and -0.73% on light volumes and weaker breadth as trade data weighed on the market. Within the MSCI China All Shares’ mainland stocks, healthcare saw profit taking after its recent rebound -2.37% with staples -1.55% and discretionary -1.32%. While all sectors were off it felt like a quiet day in the mainland markets. It was a rare sale by foreign investors via Northbound Connect in moderate volumes.

Venture capitalist Kai-Fu Lee was highlighted on 60 Minutes last evening. He was the keynote speaker at UBS’ China conference in Shanghai last week. His speech was given to 2,800 attendees! A great indication that there is significant institutional demand for China. My colleagues who attended the conference were very impressed by the attendees and presenters. In addition to Mr. Lee they mentioned the CEO of EV maker Nio as very impressive.

It didn’t move the markets but a mainland broker noted Finance Minister Liu Kun was quoted in mainland media on fee and tax cuts. Interesting I didn’t read this elsewhere but a good sign that fiscal stimulus is being applied.

The Ministry of Commerce reported that foreign direct investment increased 25% in the month of December to RMB 92B/$13.7B. For the year it was a 0.9% (3% in US $ terms). Interesting increase in December.

Some chatter that China will increase US ethanol imports.

The State Administration of Foreign Exchange announced the lifting QFII quota to $300B from $150B. Connect has become the preferred way for foreign investors to access the mainland equity markets. YTD $2.5B has been invested from foreigners in the mainland via Connect trading.

CNY 6.76

The exceedingly volatile front end of the curve jumped.

• Yield on 1 Day Chinese Gov’t Bond 1.80%
• Yield on 10 Year Chinese Gov’t Bond 3.11%
• Yield on 10 Year China Development Bank Bond 3.69%

Commodities were mixed on both Dalian and Shanghai