Hope all is well!

Key News Overnight
The typhoon that hit Hong Kong wasn’t as strong as forecasted though Asian equities had to weather Powell’s less than enthusiastic embrace of further cuts, tepid results of the US China trade talks and continued demonstrations. Outside of Japan which made a miraculous 180 after opening down, Asian equities were universally down on the day. The market appears to be taking a fairly pessimistic view of the talks though there are indications some progress was made as a mainland media source noted there will be dialogue in August prior to the September meeting in the US. With the S&P at its highs during the talks, the US likely didn’t feel much pressure to get a deal done. Macau casino stocks were weak on July gaming data as visitors likely avoided the demonstrations.
The Hong Kong Monetary Authority followed the Fed’s lead by cutting interest rates 25 bps. It is not expected that the PBOC will follow the Fed with an interest rate cut but is apt to continue with targeted measures such as a bank reserve requirement ratio.
Fed tea leave readers scour every sentence of Fed statements. The same is occurring in China following the government meetings in China this week called the Beidaihe meeting after the resort town it used to take place in. Following the meetings we’ve started to receive commentary as analysts compare the text from previous releases. It is clear property will not be used as a stimulus as the focus is not on short term solutions but addressing structural issues such as supporting the private sector. Real estate was again the worst performer in both HK and the mainland on the news and demonstrations while materials has also been adversely effected.

July Caixin PMI Manufacturing 49.9 versus estimate 49.5 and June’s 49.4
Takeaway: The release beat market expectations though had no impact on the day’s trading despite being issued at 9:45am. New order and output rebounded in July into expansion as the Manufacturing PMI is still in below 50/contraction territory though slowing at a slower pace. Confidence also picked up which reaffirms our significant Chinese economist meeting two weeks ago who expects a strong economic rebound in 2H 2019.

The Hang Seng fell -0.76%/-212 index points to close at 27,565 as volumes picked up 32% day over day though still 10% off the 1 year average. Breadth was weak with only 9 advancers and 40 decliners as index heavyweights AIA -1.48%/-42.6 index points, Sun Hung Kai Properties -4.1%/-17.5 index points, and CK Asset Holdings -3.62%/-16.24. The standout was Tencent which gained +0.49%/+14.5 index points following yesterday’s partnership announcement with Qualcomm. The HK stocks within the MSCI China All Shares lost -0.33% led lower by real estate -2.03%, materials -1.77% and tech -1.05% while utilizes +0.85%, communications +0.27% thanks to Tencent and discretionary +0.06%. Southbound Connect volumes were moderate though mainland buyers were active as CCB had 6 to 1 buying and Tencent buyers slightly outpaced sellers.

Shanghai & Shenzhen lost -0.81% and -0.52% on volumes up slightly day over day though well off the 1 year average as 916 stocks advanced and 2,604 stocks declined. Small and mid caps outperformed large caps as we continue to see rotation from foreign favorites such as liquor and home appliances in favor of New China themes. The mainland stocks in the MSCI China All Shares -1.07% on real estate weakness -1.98%, discretionary -1.43% industrials -1.17%, financials -1.15%, healthcare -1.15%, staples -1.04% and materials -1.01%. Utilities managed a gain of +0.15% while tech was off -0.56% and communications -0.59%. Shanghai & Shenzhen Connect volumes were moderate though once again Shanghai saw outflow while Shenzhen saw inflow. In aggregate foreign investors pulled $166mm from mainland stocks as both Kweichow Moutai and Ping An had sellers.

We’ve heard rumors that ByteDance could be headed to an IPO in the coming months.

One interesting tea leave in global trade was the earnings of Shanghai International Port Group (600018 CH). 1H 2019 earnings must have been terrible right? Revenue increased 29% year over to $645mm (RMB 4.37B) as container traffic increased 5% to 21.5mm containers year over year. Today’s release of global PMIs were very universally weak though this company shows maybe China is weather global economic malaise moderately well.

ZhongAn Online P&C Insurance (6060 HK) gained nearly 12% on a strong earnings pre-announcement. Meituan Dianping (3690 HK) had a strong day up nearly 4% as several brokers noted increased buying overnight.

US listed Chinese companies’ earning season picks up next week with Ctrip on August 7th though the two weeks after are very busy. The below dates are subject to change.
August 12th – Autohome, Tencent Music Entertainment, Yirendi
August 14th – Tencent (after the HK close), HUYA, Netease, QD, VIPS
August 15th - BABA
August 19th – Baidu, IQ, JD.com
August 21st – Baozun, QD
August 22nd – MOMO
August 28th – Sina, Weibo
August 30th – Pinduoduo

CNY 6.90 versus 6.88; 27bps is a decent sized move overnight

Bonds have been rallying on equity weakness.
Yield on 1 Day Chinese Gov’t Bond 2.04% versus 2.17%
Yield on 10 Year Chinese Gov’t Bond 3.16% versus 3.18%
Yield on 10 Year China Development Bank Bond 3.65% versus 3.67%

Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper -0.13%.