25 Mar 2014
Asia EM Express: Yuan strengthens on PBoC stimulus speculation
FXStreet (Łódź) - Concerns over the ongoing slowdown in China continued at the beginning of the week, which opened with a lower than expected flash HSBC Manufacturing PMI reading adding “downside risks to an already bleak Q1 growth picture,” as Jonathan Cavenagh, analyst at the Westpac Bank Corporation suggests.
Overnight, a former PboC official Li Daokui said that the Chinese government was devising contingency plans in case the economic slowdown intensified. He listed easing rules around private investment as well as speeding up public spending among the considered measures. He also suggested that in the adjustment period China could see some local government debt defaults.
Meanwhile, the Shanghai Composite property sub index surged 3.5% in early trade, building on Monday's 2.9% gains.
“The rally reflects that some circles within the property industry may still expect the possibility of further stimulus to support growth in China soon,” as Ivan Delgado points out. “Earlier on the session, hopes of new stimulus by China were dashed, when China Securities Journal front page editorial said there is no much room for China to loosen monetary policy.”
IMF chief Christine Lagarde, who is currently visiting Beijing, said at an economic forum that China's economic achievements so far were “enormous” and that it was becoming a stabilizing force in the global economy.
Still, the IMF head pointed out that there were "serious obstacles" on China's path towards attaining sustainable long-term growth. She emphasized the need for further reforms and policy changes.
"The challenge is clear: to make growth more inclusive, friendlier to the environment, and more sustainable," Lagarde said.
Economic data
On Tuesday the Conference Board Leading Economic Index for China was released, showing a decrease to 0.9 in February from 1.2% in January.
The Philippines' National Statistics Office informed that in January the trade deficit widened to -1,376M, from -813M in December and above consensus of -1,018M.
Technicals
Yesterday USD/CNY fell towards the 6.1959 level, which was the biggest daily decline since it started strengthening in mid February.
According to Jonathan Cavenagh from Westpac Bank Corporation there are “risks of a more two-way environment in USD/CNY/CNH as we progress through Q2.”
“A lot of bad news is already priced in the near term growth outlook and by the end of Q2 a better outlook may well be present, particularly in terms of the forward indicators. International risk events (Treasury semi-annual report on FX markets, IMF/World Bank meetings, US-China Strategic Dialogue) through Q2 are also likely to bias USD/CNY sideways to lower. Coupled with the fact that a lot of short USD positioning has already been removed and we could see a meaningful correction lower in USD/CNY/CNH.”
Overnight, a former PboC official Li Daokui said that the Chinese government was devising contingency plans in case the economic slowdown intensified. He listed easing rules around private investment as well as speeding up public spending among the considered measures. He also suggested that in the adjustment period China could see some local government debt defaults.
Meanwhile, the Shanghai Composite property sub index surged 3.5% in early trade, building on Monday's 2.9% gains.
“The rally reflects that some circles within the property industry may still expect the possibility of further stimulus to support growth in China soon,” as Ivan Delgado points out. “Earlier on the session, hopes of new stimulus by China were dashed, when China Securities Journal front page editorial said there is no much room for China to loosen monetary policy.”
IMF chief Christine Lagarde, who is currently visiting Beijing, said at an economic forum that China's economic achievements so far were “enormous” and that it was becoming a stabilizing force in the global economy.
Still, the IMF head pointed out that there were "serious obstacles" on China's path towards attaining sustainable long-term growth. She emphasized the need for further reforms and policy changes.
"The challenge is clear: to make growth more inclusive, friendlier to the environment, and more sustainable," Lagarde said.
Economic data
On Tuesday the Conference Board Leading Economic Index for China was released, showing a decrease to 0.9 in February from 1.2% in January.
The Philippines' National Statistics Office informed that in January the trade deficit widened to -1,376M, from -813M in December and above consensus of -1,018M.
Technicals
Yesterday USD/CNY fell towards the 6.1959 level, which was the biggest daily decline since it started strengthening in mid February.
According to Jonathan Cavenagh from Westpac Bank Corporation there are “risks of a more two-way environment in USD/CNY/CNH as we progress through Q2.”
“A lot of bad news is already priced in the near term growth outlook and by the end of Q2 a better outlook may well be present, particularly in terms of the forward indicators. International risk events (Treasury semi-annual report on FX markets, IMF/World Bank meetings, US-China Strategic Dialogue) through Q2 are also likely to bias USD/CNY sideways to lower. Coupled with the fact that a lot of short USD positioning has already been removed and we could see a meaningful correction lower in USD/CNY/CNH.”