Key News

Asia was a sea of red outside of Korea and Mainland China as investors wait for developments on US-China trade talks in light of the coming December 15^th tariff hike, ECB and Fed guidance, and a slew of economic data. US-China trade talks appear to be headed in the right direction as both Jared Kushner and Sonny Perdue, Agriculture Secretary, had positive comments on Monday.

However, this morning the WSJ had an article/”leak” that the December 15^th tariffs would not be implemented. The WSJ is a credible source for US trade leaks. Considering Kushner that spoke at the WSJ CEO Council meeting yesterday it may have been Kushner who made the leak, which would be a strong positive sign. A little conjecture on my part. It is very important to read below that China loan data came out after the market’s close. Tech and communication led the Mainland higher as Huawei announced it will continue launching smart phones using the self-developed Harmony operating system. This is obviously a loss for Google’s Android system thanks to US policy restricting Huawei’s purchases of US tech. Volumes were abysmal overnight, which is a good compliment to the yesterday’s WSJ article on the lack of US equity inflows (Investors Bail on Stock Market Rally, Fleeing Funds at Record Pace) that has garnered a lot of attention. I believe the lack of volumes globally shows that investors are letting current positions “ride” but are not committing more capital.

November CPI & PPI Data

Takeaway: Pork prices continue to drive food inflation as non-food CPI gained just 1% while food CPI jumped 19.1%. The trade war weighs on input prices as raw material prices plunged -5%. The market believes that pork prices are apt to start leveling off.

November Loan Data

Takeaway: It is important to recognize this data was released after the Hong Kong/Mainland close. The big jump from October is due to the big weeklong holiday in October. Regardless, the financing and new loan data signify that policies, particularly “counter-cyclical policies”, are having a positive effect. It is probable that China is coming out of an economic trough while many markets, i.e. the US, are likely in the final stages of their cycle. If we can remove the major impediment to global and China growth, i.e. the trade war, maybe China’s bottom will lead to a strong upswing. If US politics prove a headwind for US equities, China may prove to be a good rebalance location.

H-Share Update

The Hang Seng had a roller coast ride within a tight range as the index reached a low of -0.53%, before rebounding into the green momentarily, and then ending off -0.22%/-58.1 index points to close at 26,436. Volumes were -5% day-over-day while well off the one-year average.  Breadth was off with only 9 advancers and 36 decliners as Shenzhou International was the worst performer on year-end profit-taking according to brokers -3.51%/-9.1 index points. China Overseas Land was the best performer +2.52%/+8.3 index points and AIA -0.26%/-6.67 index points. The Mainland stocks within the MSCI China All Shares Index were off -0.12% as discretionary -1.95%, staples -1.31%, industrials -0.61%, healthcare -0.41%, utilities -0.27%, energy -0.26%, and tech -0.11%. Materials +0.51%, communication +0.23% and real estate and financials +0.17%. Southbound Connect volumes were moderate/high as Mainland investors were buyers of Hong Kong stocks. Volume leader Tencent had buyers outpace sellers by a small margin, CCB had 5 to 1 buyers and China Mobile saw massive buying relative to sellers. Southbound Connect volume accounted for nearly 10% of Hong Kong turnover.

A-Share Update

The Shanghai & Shenzhen were lower in the morning but grinded higher in the afternoon to close +0.1% and +0.38%, respectively. Volumes were off slightly -2% day-over-day though breadth was moderately positive as 1,908 advancers and 1,562 decliners. Small and mid-caps outperformed large caps by a small margin. The Mainland stocks within the MSCI China All Shares Index gained +0.22% led higher by tech +1.4%, healthcare +1.04%, communication +0.79%, discretionary +0.61%, materials +0.4% and industrials +0.06%. Real estate was off -0.44%, utilities -0.36%, staples -0.26%, energy -0.24% and financials -0.2%. Northbound Connect volumes were moderate/light though foreign investors’ appetite for Mainland stocks remains unabated. There is some sort of all-you-can-eat buffet reference. In a continuation of the new normal, volumes in Shenzhen outpaced Shanghai. Foreign investors bought $419mm of Mainland stocks today. Northbound Connect volume accounted for 3.7% of mainland turnover.

Last Night’s Prices & Yields

• CNY/USD 7.035 versus 7.039 yesterday
• CNY/EUR 7.79 versus 7.79 yesterday
• Yield on 1-Day Government Bond 1.815% versus 1.915% yesterday
• Yield on 10-Year Government Bond 3.178% versus 3.190% yesterday
• Yield on 10-Year China Development Bank Bond 3.59 % versus 3.59% yesterday
• Commodities were higher on the Shanghai & Dalian Exchanges with Dr. Copper +1.15%