Key News
Asian equities were lower as our “tariffs higher = markets down” theory was proven correct by Nvidia’s announcement that it will take a Q1 charge of $5.5 billion. The US government will require Nvidia to obtain an export license for its H20 chips. No word from AMD (yet), as their MI308 chips will also require an export license.
There are small signs that the US and Chinese governments are slowly getting to a point of talking to one another, as China issued a statement saying that it would gladly negotiate once the US appoints a representative. Hong Kong, Taiwan, South Korea, and Vietnam underperformed. Meanwhile, India, Thailand, and Singapore all managed small gains. Hong Kong was led lower by growth stocks in a broad sell-off marked by poor breadth. Internet stocks were hurt by concerns about restaurant delivery margins after JD.com, which fell by -5.52%, said it wouldn’t make more than 5% margins on delivery, which dragged down Meituan, as well, which fell by -8.11%. I wonder whether restaurant vouchers will be part of the stimulus, which is why JD is promoting the fact that it is not price gouging restaurants.
There was very little green on the screen, as pharmaceuticals, technology hardware, electronics, internet, and electric vehicle (EV) stocks were all down. Mainland investors bought a healthy net $1.017 billion worth of Hong Kong-listed stocks today. Mainland markets were also off, as growth underperformed. The ETFs favored by the “National Team”, i.e. investment firms associated with China’s sovereign wealth, saw very high volumes going into the close, which lifted mega-capitalization stocks and pushed the Shanghai Composite into positive territory. Mainland media noted that Chinese banks have extended the RMB 100 billion in loans to companies in order to fund stock buybacks. March and Q1 data was what macroeconomic researcher Jared Dillian would call a “Costanza day”. Good news is actually bad news, referencing the Seinfeld episode when George Costanza does the opposite of his instincts, leading to positive results.
There has been chatter that the strong data will curb the potential for strong stimulus, but it appears overblown as tariff fronting was a factor. The coming stimulus will be to offset the effects of US tariffs versus looking in the rearview mirror. China and Vietnam signed a trade memorandum of understanding (MOU).
March and Q1 Data Highlights:
- Q1 GDP increased by +5.4% versus expectations of +5.2%.
- Q1 GDP versus Q4 2024 increased by +1.2% versus expectations of +1.4%.
- March Retail Sales increased by +5.9% year-over-year (YoY) versus expectations of +4.3%.
- Year-to-date (YTD) Retail Sales increased by +4.6% YoY versus expectations of +4.3%.
- YTD Online Retail Sales increased by +7.9% YoY.
- March Industrial Production increased by +7.7% YoY versus expectations of +5.9%.
- YTD Industrial Production increased by +6.5% YoY versus expectations of +5.9%.
- March Fixed Asset Investment increased by +4.2% YoY versus expectations of 4.1%.
- March Jobless Rate was 5.2% versus expectations of 5.3%.
- YTD Property Investment decreased by -9.9% YoY versus expectations of -9.9%.
- YTD Residential Property Sales decreased by -0.4% YoY.
- March New Home Sales decreased by -0.8% versus February.
- March Used Home Sales decreased by -0.235% versus February.
The great Daniel Kahneman’s Thinking Fast Thinking Slow was recently on full display as US Treasuries sold off. Common Thinking Fast narrative: China is dumping its Treasuries! My thought: maybe, but why isn’t the renminbi appreciating versus the US dollar? Thinking Slow evidence-based explanation: relative value fixed income hedge funds’ highly leveraged basis trade went the wrong way, causing a rapid unwind.
Hat tip to our friend Matt for his recommendation of The Ezra Klein Show podcast’s recent interview with Tom Friedman, who has just returned from China. Klein begins by touching on his concern about the consensus negativity in Washington DC on both sides of the aisle towards China. I would agree that an anti-China genie was released out of the bottle, which will be hard to put back on, as the media has only further fanned the flames by historically throwing gasoline on the dumpster fire. In my opinion, it started back in Obama’s first term and is highly correlated with the growth in the size of the US government and its spending the two talk about. Friedman makes an exceedingly good point about how China’s local governments support (subsidize) industries early on, creating a proverbial “Fitness Center”, where only the strong can survive due to the vicious competition.
The two talk about Huawei, solar, and EVs as byproducts of this “Fitness Factory”. It was a very worthwhile listen, though I am more optimistic, as they fail to touch on how inter-connected US and Chinese business people are. While the diplomats throw stones, businesspeople figure out ways to make things work and make money. I also believe markets and the economy are acting as a hard-to-deny truth serum, which the media is mainly reporting. Exhibit A would be tariff beneficiaries Ford and GM facing significant headwinds because of tariffs! The perpetually negative US media is not the narrative those outside of the US consume. The bigger question is, what allows both sides to save face and de-escalate?
For those interested, we will be hosting a webinar on the current status of US-China negotiations with Trump’s Former Ambassador to China Terry Branstad on Wednesday, April 23rd. Please click here to register.
Live Webinar
Join us on Wednesday, April 23, at 10 am EDT for:
Trump’s China Playbook: Amb. Terry Branstad on How the President Thinks
Please click here to register
New Content
Read our latest article:
New Drivers For China Healthcare: AI Med-Tech Innovation, Cancer Treatment, & Favorable Balance of Trade
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.31 versus 7.31 yesterday
- CNY per EUR 8.29 versus 8.29 yesterday
- Yield on 10-Year Government Bond 1.66% versus 1.66% yesterday
- Yield on 10-Year China Development Bank Bond 1.70% versus 1.70% yesterday
- Copper Price +0.25%
- Steel Price -0.16%
Read the full article here
