Daily Insight The yuan devalued
Group Economics Macro & Financial Markets Research Arjen van Dijkhuizen, Nick Kounis & Aline Schuiling, +31 20 343 5616
12 August 2015
PBoC adjusts daily fixing rate following weak export data – further weakness ahead Greece reaches agreement with creditors on terms of ESM programme; pitfalls remain Germany’s ZEW falls further in August, though we remain positive on outlook
PBoC adjusts fixing rate, triggering depreciation…
De facto CNY peg to USD has become ‘too expensive’
The PBoC on Tuesday adjusted the daily fixing rate of the
Indices, 2010 = 100
USD-CNY by 1.9%. The PBoC defended the move by pointing
160
to the goal of making the exchange rate regime more market-
150
oriented, possibly reflecting the future IMF decision on CNY
140
inclusion in the SDR. Our end-of-year forecasts already had
130
discounted for some exchange rate liberalisation and depreciation, but we are currently reviewing them taking the move into account. Further weakness looks to be on the cards.
120 110 100 90
…in response to ongoing weak export data Although domestic data showed signs of stabilisation recently, China’s trade data published last weekend were disappointing.
80 08
09 10 REER (CPI-based)
11
12 13 JPY per CNY
14 15 EUR per CNY
Source: Thomson Reuters Datastream, ABN AMRO Group Economics
After having shown growth again in June (+2.8% yoy), exports fell by 8.3% yoy in July . The poor export performance this year partly reflects the real effective appreciation of the yuan (CNY), which had been de facto tied to the USD since March. The CNY has become particularly strong vis-à-vis the JPY and the EUR, reflecting the BoJ’s and ECB’s QE policies. The yuan real effective exchange rate has risen by almost 10% since the start of last year and by around 4% this year, so the move in the fixing is still quite modest from that perspective and would need to go further to be a significant stimulus for the tradable goods sector.
Germany's ZEW unexpectedly drops but outlook positive Germany’s ZEW economic sentiment unexpectedly staged its fifth monthly decline in a row in August. It fell to 25, down from 29.7 in July. The decline is probably related to ongoing worries about a Grexit and a combination of fears of a sharp slowdown of the Chinese economy and falling commodity prices. The ZEW index is largely influenced by sentiment on financial markets, and we do not think that the decline in August is reflecting weaker growth in the German economy. German GDP to strengthen in Q2
Greece agrees terms of ESM deal Meanwhile, Greece reached an agreement with creditors on the terms of an ESM deal according to reports. This should pave the way for a deal to be in place before 20 August when a payment is due to the ECB. The Greek and several other national parliaments need to approve the deal. The agreement had looked on the cards over the last few days but seemed rather unlikely following the no vote in the referendum a few weeks ago. So this seems to complete a remarkable turnaround. However, Greece is far from being out of the woods. Unfortunately, there are a number of potential pitfalls that could knock the deal off course in coming months, which could once again raise Grexit worries (see yesterday’s daily).
Indeed, we expect GDP growth in Germany to have picked up in Q2, following the slowdown in Q1, and to continue to grow robustly in the second half of this year. Q2 GDP data will be published on Friday and we have penciled in growth of 0.6% qoq. Germany’s economy is benefitting from the weak euro, low energy prices and improved financial conditions due to the ECB’s QE programme. Moreover, employment is growing, real wage growth has jumped higher and corporate profitability has improved as well. Therefore, we expect broad-based GDP growth in the coming quarters.
2
The yuan devalued – 12 August 2015
Financial markets Currency markets
Close
Change 1 day
Change 5 days
Change YTD
EUR/USD USD/JPY
1.1040
-0.0181
1.2287
125.11
-0.0160
0.1922
-8.7452 4.4498
AUD/USD
0.7312
0.1095
-0.5982
-10.5566
USD/CHF
0.9882
0.0101
0.9294
-0.6135
NZD/USD
0.6549
0.1989
0.5836
-16.0062
GBP/USD
1.5584
0.0771
-0.1218
0.0449
USD/SGD
1.4011
-0.0143
1.2282
5.7035
USD/CAD
1.3097
-0.1296
-0.6071
12.7011
Bond markets
Close
Change 1 day
Change 5 days
Change YTD
2-year German Govt Bond yield
-0.2760
-0.0090
-0.0270
-0.1780
10-year German Govt Bond yield
0.6320
-0.0660
-0.0060
0.0910
Yield curve Germany
0.9080
-0.0570
0.0210
0.2690
2-year US Treasury Bond yield
0.6770
0.0040
-0.0493
0.0125
10-year US Treasury Bond yield
2.1516
0.0107
-0.1183
-0.0196
Yield curve US
1.4746
0.0067
-0.0690
-0.0321
US 2-year sw ap rates
0.9308
0.0140
-0.0453
0.0365
US 10-year sw ap rates
2.2374
0.0288
-0.1160
-0.0487
US sw ap curve
1.3066
0.0148
-0.0707
-0.0852
EU 2-year sw ap rates
0.0810
-0.0030
-0.0140
-0.0940
EU 10-year sw ap rates
0.9918
0.0133
-0.0942
0.1798
EU sw ap curve Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month
0.9108
0.0163
-0.0802
0.2738
-0.0240
0.0000
-0.0010
-0.1020
0.3142
0.0026
0.0105
0.0586
JPMorgan EMBI Plus Sovereign S
422.2900
9.5000
15.6300
34.8500
Equity markets
Close
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
20,721
-0.42
0.52
Hang Seng Index
24,498
-0.09
0.38
3.78
Hang Seng China Enterprises Index
11,265
-0.24
1.71
-6.01
Australian Stock Exchange S&P/ASX 200 Index
5,461
-0.22
-3.75
0.93
Singapore Straits Times Index
3,153
-1.36
-1.54
-6.30
Euro Stoxx 50 Index
3,605
-1.90
-0.39
14.58
S&P 500 Index
2,084
-0.96
-0.44
1.22
MSCI World Daily Total Return Gross USD
790
-0.96
-0.57
2.87
AEX Index
494
-1.14
-1.13
16.47
12.10
5.46
-28.59
Chicago Board Options Exchange Volatility Index
Commodity markets Reuters/Jefferies CRB Total Return Gold spot USD/Oz Generic first NYMEX Crude Light future Generic first Brent Crude Oil future LME Copper 3 Months Rolling Forw ard Generic first Wheat future Chicago Board of Trade Source Bloomberg
14
Close
18.74
Change 1 day % Change 5 days %Change YTD%
200
-1.55
-0.77
1,111
0.15
2.36
-13.31 -6.27
44
1.21
-3.43
-18.15
49
0.49
-0.34
-13.80
5,125
-3.47
-2.10
-18.65
509
0.39
1.44
-13.65
3
The yuan devalued – 12 August 2015
Day
Date
Saturday Saturday
08/08/2015 08/08/2015
Sunday
09/08/2015
Monday Monday Monday Monday
Time
Country
Key Economic Indicators and Events
Period
Latest outcome
Consensus
CN CN
Exports - % yoy Imports
Jul Jul
-8.3 -8.1
-1.5 -8.0
03:30:00
CN
CPI - % yoy
Jul
1.6
1.5
10/08/2015 10/08/2015 10/08/2015 10/08/2015
15/08/2015 15/08/2015 15/08/2015 15:45:00
CN CN CN EC
M2 money supply - % yoy Aggregate financing - CNY bn New yuan loans - CNY bn ECB announces weekly QE details
Jul Jul Jul
13.3 718.8 1480.0
11.7 1000.0 700.0
Tuesday Tuesday Tuesday Tuesday
11/08/2015 11/08/2015 11/08/2015 11/08/2015
11:00:00 12:00:00 14:30:00
DE US US RU
ZEW index (expectation economic growth) NFIB small business optimisme - index Output per hour nonfarm business sector - % qoq GDP - % yoy
Aug Jul 2Q P 2Q A
25.0 95.4 1.3 -4.6
31 94.0
Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday
12/08/2015 12/08/2015 12/08/2015 12/08/2015 12/08/2015 12/08/2015 12/08/2015 12/08/2015
07:30:00 07:30:00 07:30:00 10:30:00 10:30:00 11:00:00 14:00:00 16:00:00
CN CN CN GB GB EC IN US
Industrial production - % yoy Retail sales - % yoy Fixed asset investment - % yoy Claimant count unemployment rate - % Change in claimant count - thousands Industrial production - % mom CPI - % yoy US Job Openings by Industry
Jul Jul Jul Jul Jul Jun Jul Jun
6.8 10.6 11.4 2.3 7.0 -0.4 5.4 5363.0
6.6 10.6 11.5
Thursday Thursday Thursday Thursday
13/08/2015 13/08/2015 13/08/2015 13/08/2015
01:50:00 14:30:00 16:00:00
JP US US KR
Machinery orders private sector - % mom Retail sales - % mom Business inventories - % mom Policy rate - %
Jun Jul Jun Aug 13
0.6 -0.3 0.3 1.5
Friday Friday Friday Friday Friday Friday Friday Friday
14/08/2015 14/08/2015 14/08/2015 14/08/2015 14/08/2015 14/08/2015 14/08/2015 14/08/2015
07:30:00 08:00:00 08:30:00 09:30:00 11:00:00 14:30:00 14:30:00 15:15:00
FR DE IN NL EC US US US
GDP - % qoq GDP - % qoq Wholesale price index - % yoy GDP - % qoq GDP - % qoq Prod. prices index - % mom Prod. prices index excl food and energy - % mom Industrial production - % mom
2Q P 2Q P Jul 2Q P 2Q A Jul Jul Jul
0.6 0.3 -2.4 0.6 0.4 0.4 0.3 0.2
0.2
ABN AMRO
35
0.0
0.5
0.3 0.5
0.3 0.6
0.4
0.2 0.5
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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