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Trade Deal Skeptics Search For Problems, December Monetary Data Positive

Key News

Asian equity markets were mixed overnight with the Shanghai -0.5% and Shenzhen -0.2%, while India, Singapore, Japan, Hong Kong and Korea were slightly up on the day, following Wall Street higher. As the Mainland market, measured by the MSCI China A Index, outperformed the S&P in 2019, perhaps Asia ex-China is finally having a moment to catch up.

The Wall Street Journal had an article about how difficult it will be for both sides to make good on trade quotas. The article said that China’s purchase commitments may stretch the capacity of the world’s two largest economies and noted that energy purchasing commitments are even more ambitious than those for other products. I would respond that having ambitious goals is not a problem. With regard to energy purchases, the US has greatly increased energy capacity over the past decade thanks to shale, but the development of shale infrastructure has slumped as lenders question the viability of products following a slew of defaults in the US shale sector. China’s near quintupling of its US energy purchases could restart demand in the slowing sector. The way I see it, the more trade the better.

December Monetary Data

Aggregate Financing (Total Social Financing) RMB 2.1 trillion versus consensus RMB 1.65 trillion and November’s RMB 1.75 trillion
New Yuan Loans RMB 1.14 trillion versus consensus RMB 1.2
trillion and November’s RMB 1.39 trillion
Money Supply (M2) +8.7% YoY versus consensus +8.3% YoY and
November’s +8.2% YoY

Takeaways: The PBOC recently expanded the scope of Total Social Financing (TSF) by including central and local government bonds in the metric, which largely accounts for the jump in December. Using the old metric, TSF growth was flat. In December, government bond issuance significantly outpaced corporate issuance, which shrank. Recovering demand for exports and a stabilized domestic credit cycle combine to create a favorable outlook for credit. CICC revised up its RMB level forecast to 6.72 RMB/USD by the end of 2020. This is all in line with our 2020 Outlook.

H-Share Update

The Hang Seng gained +0.4% last night after declining somewhat from a move higher in the morning. While the trade deal was already priced in, Hong Kong investors continue to digest news about the actual document, which was released yesterday afternoon DC time. Turnover ticked up 1.1% DoD to HKD 101.5 billion while Southbound investors bought a net HKD 1.3 billion worth of Hong Kong stocks. Mainland China property names gained as urban real estate prices were reported to have risen by +0.35% in December versus 0.3% in November. Semiconductors also saw another day of strong gains.

A-Share Update

The Shanghai and Shenzhen moved slightly lower by the close to -0.5% and -0.2%, respectively, on muted trading volumes. Market sentiment was tepid on the Mainland as well as trade deal skeptics somehow got the best of some investors. Despite being lower than the 1-year average, turnover increased 9% DoD. Northbound investors bought a net RMB 3.7 billion worth of Mainland stocks. Property developers rose on positive price growth in urban properties.

The Shanghai Composite’s top mover was Quectel Wireless, which rose +11.72% on the day. The company produces wireless receivers for internet-connectivity in vehicles among other hardware solutions for the wireless industry. The stock likely saw positive sentiment from both the trade deal and 5G advances.

Last Night’s Prices & Yields

RMB appreciated slightly as bond yields were largely unchanged.

  • RMB/USD 6.87 versus 6.89 yesterday
  • RMB/EUR 7.67 versus 7.69 yesterday
  • Yield on 1-Day Government Bond 1.84% versus 1.89% yesterday
  • Yield on 10-Year Government Bond 3.09% versus 3.09% yesterday
  • Yield on 10-Year CDB Bond 3.54% versus 3.54% yesterday

Bonus Video: Our Luckin Coffee vs. Starbucks comparison from yesterday in Beijing