TGIF! I am headed out west to see family during my children’s vacation next week. I will report on several key earnings.

• CPI Year over Year            1.7% versus estimate 1.9% and Dec’s 1.9%
• PPI Year over Year            0.1% versus estimate 0.3% and Dec’s 0.9%

Takeaway: This data was released just prior to the HK and mainland markets opening which weighed on market sentiment. PPI reflects weak demand which is increasingly becoming a global issue as lower input prices, lead to lower output prices. PPI is one of indicators that is rolling off from last year’s tariff front running which might get worse before it gets better due to the year over year comparison.

• Aggregate Financing       4.640 trillion versus estimate 3.307 trillion and Dec’s 1.589 trillion
• M2                                         8.4% versus estimate 8.2% and Dec’s 8.1%
• New Loans                          3.23 trillion versus estimate 3 trillion and Dec’s 1.080 trillion

Takeaway: Unfortunately for those of us long HK and mainland stocks, this release took place after the market’s close as highlights China’s policy response is working its way through the system.

Hang Seng dropped -1.87% on heavier volume as US market weakness and lack of a formal deal weighed on market sentiment. Multiple brokers noted that HK is very overbought following a big run up since early January as a pullback was long overdue and healthy. Only two stocks advanced with 48 decliners as Tencent declined -2.34%/64 index points, China Construction Bank -2.58%/-57 index points, and AIA -2.14%/57 index points. There really wasn’t anyplace to hide last night as within the MSCI China All Shares’ HK stocks even utilities and staples were off -1.05% and -1.09%. Tech and discretionary were particularly weak off -3.56% and -3.42% as the news that China semiconductor purchases could be part of a trade deal weighed on semiconductor stocks. Autos weighed on discretionary following news electric vehicle subsidies might be cancelled as part of a trade deal. That news outweighed a positive guidance from BAIC Motors. Southbound Connect volumes were elevated with sellers outpacing buyers slightly.

Shanghai & Shenzhen were off -1.37% and -0.67% on strong volumes and poor breadth as profit taking in the white horse names (home appliances, liquor, food & beverage) were taken to the glue factory. Discretionary was off -3.25% led by autos lower, followed by real estate -2.83%, and financials -2.17% within the MSCI China All Shares’ mainland stocks. The Shenzhen would have been positive if not for a late afternoon sell off. Northbound Connect volumes were elevated with buyers slightly outpacing sellers.

I’ve had several questions on Tencent’s weakness this week. In speaking with a sales/trader, he believes Tencent is in a range from 300 (buy) and 350 (sell) following its strong run since late October. In speaking with an analyst covering the company, the late march earnings are apt to be inline for Q4 but Q1 might be weak due to the lack of new game approvals. There are rumors Tencent and EA will partner to get EA’s Apex Legends in China. The game is becoming increasingly popular though these shooter games aren’t getting approved thus far.

Earnings:

• Netease & Vipshop 2/20
• Baidu & IQ 2/21
• Tencent Music 2/25

CNY 6.77

• Yield on 1 Day Chinese Gov’t Bond 1.58%
• Yield on 10 Year Chinese Gov’t Bond 3.10%
• Yield on 10 Year China Development Bank Bond 3.73%

Commodities were firmer on the Shanghai & Dalian commodity exchanges