Daily Posts

Tariff Man Returns, PBOC rural bank RRR cut, April Caixin Services PMI Rises

Hope you had a great weekend. 

Key News

  • Markets globally are tumbling on Trump’s tweet threating further China tariffs as soon as this Friday. While equity markets are recalculating the probability of a deal, macro strategist Larry McDonald observed this morning that Trump made a similar move with Mexico just prior to signing the new NAFTA agreement. As negotiations enter the final stages, Trump is deploying hardball tactics. Both the US and China have had strong economic releases recently which could lead to firmer positions. While China has reaffirmed its trade team will meet in DC this week we don’t know if Vice Premier and lead trade envoy Liu He will join. Ultimately both sides want a deal done with one Asia based trading desk noting China’s muted response to the tweet as a positive. One trading desk believes a Trump olive branch today would be very beneficial for equity markets.
  • According to Bloomberg data, equity mutual funds’ AUM in the US have $10 trillion versus China’s $126B. Just an observation on who is hurt by the trade war volatility from an investors’ perspective.
  • Lost in the trade news headlines, the PBOC lowered rural banks’ reserve requirement ratio to spur lending to small and medium sized enterprises. Over 1,000 banks with less than $1.5B in assets will have RMB 280B freed up for lending. 

Caixin China PMI Services: 54.5 versus estimate 54.2 and March’s 54.4 
Caixin China PMI Composite: 5.7 versus March’s 52.9 .
Takeaway: Another green shoot indicating stimulus has trickled down into the real economy. Now accounting for more than 50% of China’s GDP, the service sector is clearly the strongest economic segment in China today.

The Hang Seng fell -2.9%/-871 index points as the rural bank RRR cut and Service PMI were steamrolled by the trade tweet. Volumes surged above the 1 year average as there were no advancers with all 50 constituents declined. AIA gave back recent gains declining -3.59%/-105 index points while Tencent fell -3.15%/-94.8 index points and Ping An -4.77%/-72.7 index points. HK stocks within the MSCI China All Shares declined -3.27% led lower by trade sensitive tech -5.93%, healthcare -4.55% and discretionary -4.29%. Energy “outperformed” -1.86% highlighting the extent of the declines as crude weakened despite Middle East tensions rising. There really was no place to hide yesterday. Southbound Connect volumes were high with sellers outpacing buyers nearly 2 to 1 though volume leader Ping An did see buyers outpace sellers. Geely Auto experienced nearly 7 to 1 sellers while CCB saw 5 to 1 sellers.

The Shanghai & Shenzhen reopened for the first time since last Tuesday falling -5.84% and -7.38% on volumes above the 1 year average. There were only 83 advancing stocks while 3,584 declined. Small and mid caps fell nearly 8% with over 1,000 stocks limit down 10%. Similar to HK, the tech stocks within the MSCI China All Shares’ mainland stocks fell -8.66% while communications fell -8.05%, industrials -7.33% and real estate -6.78%. Utilities “outperformed” off -2.83%. Northbound Connect reopened for the first time since last Tuesday as foreign investors sold $831mm of mainland stocks. Volume leader Kweichow Moutai had 2 to 1 sellers while Ping An had sellers just outpace buyers.\

A mainland media source noted that the China Securities Journal reported that foreign bond ownership increased 60% to $

It is a busy week for economic releases coming on FX Reserves, Trade Balance, Exports/Imports, CPI/PPI, M2, and New Loans. US listed Chinese companies’ earning season kicks off with Autohome, Sina and Weibo report Wednesday and JD.com on Friday. I am in China next week but will do my best to report on a busy earnings week. Unfortunately China Last Night won’t be published next Thursday and Friday due to travel.

CNY 6.76 versus 6.73 Friday

Bonds rally on equity weakness

  • Yield on 1 Day Chinese Gov’t Bond 1.62% versus 1.92% last Tuesday
  • Yield on 10 Year Chinese Gov’t Bond 3.38% Tuesday versus 3.43% last Tuesday
  • Yield on 10 Year China Development Bank Bond 3.77% Tuesday versus 3.81% last Tuesday

Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper -2.1%