China Market lost ground after weak data

Headline shares of the Mainland China equity market were tad lower on Thursday, 10 January 2019, as optimism over the recently concluded U.S.-China trade talks were overshadowed by a disappointing Chinese inflation report. In late afternoon trade, the benchmark Shanghai Composite Index declined 0.36%, or 9.14 points, to 2,535.21. The Shenzhen Composite Index, which tracks stocks on China's second exchange, fell 0.31%, or 4.08 points, to 1,302.87. The blue-chip CSI300 index was down 0.2%, or 5.57 points, to 3,072.91.

The meetings this week which are the first ever face-to-face talks since U.S. President Donald Trump and his Chinese counterpart Xi Jinping agreed to a 90-day truce have rejuvenated risk appetite, easing fears of an all-out trade war and its possible impact on global growth. Earlier, U.S. and Chinese officials said progress had been made during the three days of talks in Beijing. While major hurdles remain, the talks appeared to clear a path for higher-level negotiations that could further ease trade tensions before President Donald Trump's March deadline, when he said he will raise tariffs on more than $200 billion in Chinese-made good from 10% to 25%.

The Chinese Ministry of Commerce (MOFCOM) said in a statement on Thursday morning that the two sides had "broad, in-depth and detailed" exchanges on trade and structural issues of shared concern. The talks have strengthened mutual understanding and laid the foundation for addressing both sides' concerns, adding that the two countries also agreed to keep close contact. The MOFCOM's brief statement followed one from the Office of the US Trade Representative (USTR), which also listed several issues discussed at the trade talks, the first face-to-face meeting after the leaders of the two countries reached a truce in December. The USTR said in its statement that the trade talks discussed ways to achieve fairness, reciprocity and balance in trade relations and the need for any agreement to have a verification process. The discussions also focused on China's pledge to buy "a substantial amount of agricultural, energy and other products from the US," it said."The delegation will now report back to receive guidance on the next steps," the USTR said, echoing China's statement on keeping close contact. The MOFCOM's statement was more concise and did not mention specific topics compared to the USTR one, which listed specific topics, most of which have been the country's long-held grievances against China.

The cost of producing goods in China's factories slowed sharply in December, a sign demand remains weak as the US trade war drags on, while consumer inflation also flagged, official data showed Thursday. The producer price index (PPI) -- an important barometer of the industrial sector that measures the cost of goods at the factory gate -- rose 0.9% on-year in December, compared with a 2.7% rise the previous month. The reading marks the lowest growth since September 2016, and fell short of market expectation. A slowdown in factory gate inflation reflects sluggish demand, while a turn to deflation could dent corporate profits. The consumer price index (CPI) -- a key measure of retail inflation -- rose 1.9%, compared with 2.2% in November. Rapidly falling inflation, especially factory-gate PPI inflation, is further evidence that China's economy is slowing at a worrying pace. Slumping PPI inflation suggests corporate earnings will almost surely continue to fall in coming months. The weak figures come as China's trade war with the US starts to bite and economic growth slows, with data last week showing manufacturing sector contracted in December for the first time in more than two years.

Shares of solar and wind power firms soared on news that Beijing is planning to launch pilot projects to promote using green energy. Solar panel components maker Longi Green Energy Technology rose 6.6%, solar cell maker Tongwei jumped 7.6% and Sungrow Power Supply boosted 5.6%.

Citic Securities was up 6.2%, after resuming trading at the open. China's largest brokerage completed a 13 billion yuan (US$1.9 billion) purchase of smaller rival Guangzhou Securities, its latest in a series of acquisitions.

CURRENCY NEWS: China yuan strengthened against greenback on Thursday, as central bank set stronger mid-point rate, underpinned by broad weakness in the greenback in overseas markets. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.816 per dollar, 366 pips or 0.54% firmer than previous day's fix of 6.8526. Onshore spot yuan opened at 6.8170 per dollar and jumped to a high of 6.7860 at one point in trade, the strongest level since July 26. As of late afternoon, the yuan was changing hands at 6.7896, or 279 pips firmer than the previous late session close and 0.39% stronger than the midpoint.

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