Key News

Asian equities were lower overnight, pulling back from their recent gains.

Mainland China and Hong Kong were both lower as many pointed to the recent US-China geopolitical tit-for-tat on rare earth export limits and the June Caixin Services PMI’s light reading of 53.9 versus expectations of 56.2 and May’s 57.1. The Services PMI is still in growth territory for the sixth month in a row, though the pace of growth slowed. The light number only applies more pressure on policy makers to support domestic consumption.

There is also talk about limiting Chinese companies’ access to US cloud service providers. These developments will make Janet Yellen’s China trip this week interesting.

The rare earth export limits sent related stocks flying in Mainland China, in an otherwise quiet night.

The Renminbi’s slide versus the US dollar appears to be hitting resistance at the 7.25 CNY per USD level.

Hong Kong’s most heavily traded stocks by value were Tencent, which fell -1.12% despite repurchasing shares again, China Construction Bank, which fell -1.77%, Alibaba, which fell -1.61%, and Meituan, which fell -2.43%. Mainland investors bought the dip to the tune of a very healthy $1.18 billion worth of Hong Kong stocks today, though Main Board short turnover was 27% of total turnover. This is a very high reading as shorts appeared to be focused on several high asset ETFs listed in Hong Kong, more so than individual companies. Both Shanghai and Shenzhen remained above the 3,200 and 2,000 levels, respectively. 

The Hang Seng and Hang Seng Tech indexes fell -1.57% and -1.42%, respectively, on volume that increased +14.26% from yesterday, which is 76% of the 1-year average. 78 stocks advanced while 417 declined. Main Board short turnover increased +110% from yesterday, which is 124% of the 1-year average, as 27% of turnover was short turnover. The value factor outperformed the growth factor as large caps “outperformed” small caps. All sectors were negative as healthcare fell -2.16%, consumer  discretionary fell -1.85%, and consumer staples fell -1.68%. All subsectors were negative as semiconductors, pharmaceuticals, and banks were the worst. Southbound Stock Connect volumes were light/moderate as Mainland investors bought a net $1.18 billion worth of Hong Kong stocks, as Meituan was a very small net buy, Xpeng was a small net buy, Tencent was a very small sell, and China Construction Bank a small net sell.

Shanghai, Shenzhen, and the STAR Board fell -0.69%, -0.84%, and -0.95%, respectively, on volume that decreased -6.64% from yesterday, which is 95% of the 1-year average. 1,463 stocks advanced while 3,122 declined. Value factors outperformed growth factors as small caps outpaced large caps. Materials and energy were the only positive sectors, both gained +0.19% and +0.05%, respectively, while technology declined -1.94%, consumer staples fell -1.88%, and consumer discretionary fell -1.73%. The top-performing subsectors were base metals, coal, and steel. Meanwhile, office supplies, communication equipment, and agriculture were the top-performing subsectors. Northbound Stock Connect volumes were light as foreign investors sold a net -$557 million worth of Mainland stocks as Kweichow Moutai was a small net sell, and Foxconn and Jiangsu Hengrui Pharma were small net buys. CNY and the Asia Dollar Index were down versus the US dollar. Treasury bonds rallied along with steel and cooper.

Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.25 versus 7.22 Friday
• CNY per EUR 7.88 versus 7.86 Friday
• Yield on 1-Day Government Bond 1.40% versus 1.40% Friday
• Yield on 10-Year Government Bond 2.64% versus 2.65% Friday
• Yield on 10-Year China Development Bank Bond 2.78% versus 2.79% Friday
• Copper Price +0.15% overnight
• Steel Price +0.27% overnight