Good morning! 

Key Catalyst Overnight

• US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are scheduled to be in Beijing next week followed by Vice Premier Liu He visiting Washington the week after. Both sides want a deal solidified in advance of a Trump Xi summit. While US equities seesawed on the afternoon news (US equities expect a resolution) and headlines screamed “pushback”, this could be the final sprint to hammer out details and set up a signing meeting.  

The Hang Seng eased -0.49%/145 index points on higher volume above the 1 year average and +4% day over day on poor breadth with 13 decliners and 35 advancers. Media headlines on trade talks cast a shadow on the markets though earnings season is driving individual stocks versus the macro. Insurance giant AIA declined -1.02%/-29 index points while real estate giant CK Hutchison +2.55%/17 index points on news the company’s AS Watson retailer could see Singapore sovereign wealth fund Temasek selling 10% its stake to Tencent (unchanged in advance of tomorrow’s earnings). Within the MSCI China All Shares’ HK stocks, staples +1.47% led by food & beverage names though the positives end there as tech fell -1.66% as Xiaomi’s weakness was joined by Apple supplier Sunny Optical’s -1.7% following poor results which weighed on AAC -1.96%. Utilities were off -1.59% as Huaneng Power declined after announcing a significant capital expenditure to raise wind generated power output. Healthcare declined -0.91% as recent winners eased. Southbound Connect volumes were elevated in mixed trading with volume leader WH Group seeing 12 to 1 buying. The pork producer has performed well as swine fever has raised prices though there are reports has been contained.

The Shanghai & Shenzhen experienced a roller coaster day as a late morning drop led by profit taking in recent strong performers pork companies, food & beverage and security brokers was followed by a late afternoon rally to end -0.01% and -0.25%. Volumes were 2X the 1 year average though flat day over day as decliners outpaced advancers. Mega cap and large caps outperformed mid and small caps with the former eeking out a positive gain. Real estate had a strong day +1.27%, financials +0.91% while tech -0.74%. Northbound Connect volumes were well above the 1 year average though off the recent highs as foreign investors were net buyers with Ping An and Kweichow Moutai seeing buying.

Tencent Music Entertainment (TME) reported their first earnings post their December IPO after the NY close yesterday. The Q4 and 2018 topline was excellent though the company swung to a loss in Q4.  The company reported a one time loss of $221mm due to an accounting rule change. Without the one time charge the company would have made a small profit. Expenses did increase in the quarter for the year at the same pace of revenue growth but off of a much lower level. The stock was in after the hour trading and is down this morning pre-market.

• Q4 Revenue +50.5% 5.4B RMB ($785mm) versus estimate 5.29B RMB and 3.59B RMB in Q4 2018
• Adjusted EPS 0.59 RMB versus estimate 0.55
• Diluted EPS loss 0.56 RMB ($0.08)
• Mobile MAU – music: 644mm versus 603mm, +6.8% YoY
• Mobile MAU – entertainment: 228mm versus 209mm, +9.1% YoY
• 2018 Revenue increased 72.9% to 18.99B RMB ($2.76B)  

Xiaomi (1810 HK) reported Q4 earnings after the HK close Tuesday. The company sold 118mm smartphones generating 65% of revenue in 2018 as their “multi-brand strategy” appealed to both high and mid end markets. Xiaomi’s gain in smartphones is likely Apple’s loss. Despite the strong results, brokers noted that investors were taking a less positive view of the company’s prospects driving the stock down -4.59%.

• Q4 Revenues increased +26.5% to 44.421B RMB
• Gross Profit increased +55.5% to 5.661B RMB
• Operating Profit increased 6.6% to 3.213B RMB
• Profit for the period increased from a loss YoY to 3.392B RMB
• Adjusted Net Profit increased 236% to 1.853B

CNY 6.69; strong move prior to today’s Fed meeting 

Front of the curve is rising of late.
Yield on 1 Day Chinese Gov’t Bond 2.1%
Yield on 10 Year Chinese Gov’t Bond 3.19%
Yield on 10 Year China Development Bank Bond 3.64% 

Commodities were mixed on the Shanghai & Dalian Exchanges w/Dr. Copper +0.08%