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Hong Kong Outperforms As Growth Leads, Biden Mulls Tariff Action

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Key News

Asian equities were mixed but mostly higher overnight as Hong Kong outperformed, driven by growth and internet stocks as optimism gathers over the end to lockdowns in China and an improving macroeconomic picture. However, Mainland markets were lower on light turnover.

China developers saw gains last night and yesterday as a data release showed that new home sales in 42 cities increased by +49% month-over-month in the first 2 weeks of June.

Despite the lack of a headline rate cut last week, which the market expected, the central bank has been guiding bank lending rates lower. Official communication has aimed at lowering borrowing costs for households and businesses. The 1 and 5-year loan prime rates (LPRs) were left unchanged over the weekend at 3.70% and 4.45%, respectively.

The Shangri La Dialogue was held in Singapore over the weekend. While US and Chinese officials took hard stances, some US and Taiwanese officials noted that progress is being made behind the scenes and that it has become clear that both sides wish to stabilize their relations. President Biden said he’ll be talking to his Chinese counterpart Xi Jinping “soon” and is weighing possible action on Trump-era tariffs.

Household Appliance names continued their rebound as domestic commercial housing transactions showed signs of recovery last week, increasing 62% month-over-month as potential tariff reductions benefit the industry.

Robotics concept names were strong following Elon Musk’s announcement on Tesla's unveiling of the Optimus robot prototype.

Iron ore prices have declined -20% from their peak earlier this year, reflecting the impact that lockdowns have had on economic activity as China is the buyer of over two thirds of the world’s iron ore. But, lockdowns are not the only reason for the slump in demand for iron ore. It will be interesting to see what policy has in store for infrastructure development. China has been re-tooling its broad infrastructure policy as it now needs to focus on digital infrastructure and projects other than highways and railroads, of which the nation already has plenty. While some analysts may say this is a negative indicator for the economy, services already account for over one half of China’s economy, which means we should not be surprised by the decline in demand for iron ore. Furthermore, we are apt to see more volatility in commodity markets going forward, some of which have hit unsustainable highs.

The Hang Seng and Hang Seng Tech Indexes gained 1.87% and 2.21%, respectively, on volume that decreased by -9% from yesterday. Growth factors outpaced value factors due to the internet rally.

Shanghai, Shenzhen, and the STAR Board closed -0.26%, -0.51% and -1.12%, respectively, on volume that fell -7% from yesterday. Mainland indexes bounced around during the day though ended near their worst levels, perhaps waiting for the US market open this morning to go higher.

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.70 versus 6.69 yesterday
  • CNY/EUR 7.07 versus 7.05 yesterday
  • Yield on 1-Day Government Bond 1.20% versus 1.18% yesterday
  • Yield on 10-Year Government Bond 2.79% versus 2.79% yesterday
  • Yield on 10-Year China Development Bank Bond 2.99% versus 2.99% yesterday
  • Copper Price -0.93% overnight