Back
5 Jan 2016
China: Tale of crests and troughs - BBH
FXStreet (Delhi) – Research Team at BBH, notes that the Chinese economy appears to be stabilizing, but keeping the onshore (CNY) and offshore (CNH) in line is proving difficult for policymakers.
Key Quotes
“The official manufacturing PMI edged up to 49.7 from 49.6 in November, while the official service PMI rose to 54.4 from 53.8. The Caixin measures are at lower levels, but are expected show an expanding service sector this week. However, markets have been spooked by the weaker than expected Caixin manufacturing PMI that was just reported today.
Other data may be more constructive. Foreign exchange reserves may have risen in December for the first time since April. The euro’s and yen's gains (2.8% and 2.4%, respectively) against the dollar likely helped. The contraction in exports is expected to have slowed for a second month (-6.0% year-over-year vs. -6.8% in November and -6.9% in October). The contraction in imports is largely a function of prices, not volumes. Consumer inflation is expected to have accelerated to 1.7% from 1.5% while deflation at the producer level continues unabated. The last time China reported an increase in producer prices on a year-over-year basis was January 2012.
China has apparently tried indirect intervention in the offshore yuan market. This has not generated any lasting impact. At the end of last year, China punished a couple foreign banks and has suspended their settlement of offshore yuan for three months. The goal is apparently to prevent any gaming of the market and speculating on the further yuan weakness. Yet since the start of November, the dollar has risen around 3% against the yuan. The most powerful thing the PBOC can do to stop the pressure on the offshore yuan is to indicate by deed that it is no longer guiding the onshore yuan lower.
Besides the risk of weak data, the near-term outlook for Chinese equities is clouded by the end of the IPO ban and the freeze on sales by large shareholders. The Shanghai Composite rose 9.4% last year, which was 25% above the August lows. Before Christmas, it turned back from the upper end of its two-month trading range.”
Key Quotes
“The official manufacturing PMI edged up to 49.7 from 49.6 in November, while the official service PMI rose to 54.4 from 53.8. The Caixin measures are at lower levels, but are expected show an expanding service sector this week. However, markets have been spooked by the weaker than expected Caixin manufacturing PMI that was just reported today.
Other data may be more constructive. Foreign exchange reserves may have risen in December for the first time since April. The euro’s and yen's gains (2.8% and 2.4%, respectively) against the dollar likely helped. The contraction in exports is expected to have slowed for a second month (-6.0% year-over-year vs. -6.8% in November and -6.9% in October). The contraction in imports is largely a function of prices, not volumes. Consumer inflation is expected to have accelerated to 1.7% from 1.5% while deflation at the producer level continues unabated. The last time China reported an increase in producer prices on a year-over-year basis was January 2012.
China has apparently tried indirect intervention in the offshore yuan market. This has not generated any lasting impact. At the end of last year, China punished a couple foreign banks and has suspended their settlement of offshore yuan for three months. The goal is apparently to prevent any gaming of the market and speculating on the further yuan weakness. Yet since the start of November, the dollar has risen around 3% against the yuan. The most powerful thing the PBOC can do to stop the pressure on the offshore yuan is to indicate by deed that it is no longer guiding the onshore yuan lower.
Besides the risk of weak data, the near-term outlook for Chinese equities is clouded by the end of the IPO ban and the freeze on sales by large shareholders. The Shanghai Composite rose 9.4% last year, which was 25% above the August lows. Before Christmas, it turned back from the upper end of its two-month trading range.”