Daily Insight More CNY weakness ahead?
Group Economics Macro & Financial Markets Research Arjen van Dijkhuizen, Roy Teo & Nick Kounis
+31 20 343 5616
13 August 2015
PBoC adjusts the USD-CNY fixing rate once more, triggering further depreciation Further moderate CNY weakness looks likely, as well as other forms of stimulus We do not think the yuan move will spark a currency war or a Fed delay
PBoC adjusts the USD-CNY fixing rate once more
stimulus), but should data continue to disappoint, we could see
After adjusting the daily fixing rate of the USD-CNY by 1.9% on
even more easing than that.
Tuesday, the PBoC added just another ‘one-off’ adjustment of 1.6% yoy on Wednesday. Still, the second adjustment was in
China: activity data did not improve further in July
line with its Tuesday statement, indicating that the fixing of the reference rate would be based more on actual market
% yoy
25
14
movements. The move triggered a further depreciation of the CNY (and the offshore CNH). Although some reversal took place in the course of yesterday, the CNY developments had
12
20
10 15
quite an impact on markets, leading to weakness in equities and Asian currencies, but supporting Treasuries and Bunds. More CNY weakness ahead but not aggressive In our view, the PBoC’s surprising twist serves two policy goals: 1) supporting and reflating the economy by boosting export competitiveness and 2) showing commitment to
8 10
6 4
5 08 09 10 11 12 Industrial production (lhs) Bloomberg GDP estimate (rhs)
13 14 15 Retail sales (lhs)
Source: Thomson Reuters Datastream
currency liberalisation in the run-up to the IMF’s decision on RMB inclusion into the SDR basket. The IMF recently indicated that further liberalisation is needed, while hinting it would postpone the SDR decision to 2016. Still, The PBoC will also continue to face constraints. The ‘stability-oriented’ authorities will likely not tolerate too much CNY weakness, as that may trigger more capital outflows and would raise the debt repayment burden of entities with high USD-denominated debts. Overall, we see further weakness, and have changed our forecasts to 6.55 by end-2015 and 6.75 by end-2016.
Yuan move does not look like triggering a currency war… We do not think that the devaluation of the yuan will now trigger a currency war given that it is not too aggressive, while other countries also recognise that China’s economy faces challenges. Reactions from other countries so far are in line with this view. An EU spokesperson described the move as a ‘positive development’ to the extent that it better reflects market forces. South Korea’s Deputy PM for Finance said that greater Chinese export competitiveness will also benefit Korea. Even the normally hawkish US Treasury adopted a restrained
Weaker data could trigger other forms of stimulus Meanwhile, recent activity, trade and PPI data point to ongoing weakness, particularly within China’s industrial sectors. Industrial production slowed in July. So did fixed investment and retail sales, although marginally. After rebounding to 6.9% yoy in June, Bloomberg’s monthly GDP estimate fell back to 6.6% in July. While we regard the recent CNY moves as a form of policy easing, we expect the PBoC to take further easing steps to keep growth close to its 7% target and prevent a hard landing. We have currently penciled in one more 25 bp policy rate cut and 100 bps in RRR cuts (next to ongoing fiscal
tone, saying it was too early to judge the full implications of the move. …or delay a Fed hike Speculation that the Fed will now delay raising interest rates, which has weighed on the dollar, also look off the mark at this stage. The yuan devaluation will not have a big impact on the US economic outlook. Recent strong labour market data and FOMC member commentary point to a September increase in the Fed’s target range for the fed funds rate.
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More CNY weakness ahead? – 13 August 2015
Financial markets Currency markets
Close
Change 1 day
Change 5 days
Change YTD
EUR/USD USD/JPY
1.1157
-0.0179
2.1236
124.31
0.0805
-0.3447
3.7819
AUD/USD
0.7383
0.0542
0.5037
-9.6881
USD/CHF
0.9752
-0.0205
-0.5811
-1.9209
NZD/USD
0.6612
-0.1208
0.9004
-15.1982
GBP/USD
1.5614
0.0064
0.6576
0.2375
USD/SGD
1.3993
0.0357
1.1274
5.5677
USD/CAD
Bond markets
1.2978
Close
0.0077
Change 1 day
-1.0069
Change 5 days
-7.7781
11.6771
Change YTD
2-year German Govt Bond yield
-0.2840
-0.0080
-0.0370
-0.1860
10-year German Govt Bond yield
0.6050
-0.0270
-0.1490
0.0640
Yield curve Germany
0.8890
-0.0190
-0.1120
0.2500
2-year US Treasury Bond yield
0.6611
-0.0040
-0.0395
-0.0034
10-year US Treasury Bond yield
2.1378
-0.0102
-0.0836
-0.0334
Yield curve US
1.4767
-0.0062
-0.0441
-0.0300
US 2-year sw ap rates
0.9150
0.0333
-0.0358
0.0207
US 10-year sw ap rates
2.2233
0.0330
-0.0917
-0.0628
US sw ap curve
1.3083
-0.0003
-0.0559
-0.0835
EU 2-year sw ap rates
0.0910
0.0115
-0.0060
-0.0840
EU 10-year sw ap rates
0.9699
0.0159
-0.0691
0.1579
0.8789
0.0044
-0.0631
0.2419
-0.0240
0.0000
0.0000
-0.1020
EU sw ap curve Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month
0.3144
0.0002
0.0133
0.0588
JPMorgan EMBI Plus Sovereign S
419.4300
-2.8600
16.1200
31.9900
Equity markets
Close
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
20,393
-1.58
-1.31
Hang Seng Index
23,916
-2.38
-2.44
1.32
Hang Seng China Enterprises Index
11,043
-1.97
-0.75
-7.86
16.86
Australian Stock Exchange S&P/ASX 200 Index
5,407
0.46
-3.62
-0.07
Singapore Straits Times Index
3,061
-2.90
-4.11
-9.02
Euro Stoxx 50 Index
3,484
-3.35
-5.23
10.74
S&P 500 Index
2,086
0.10
-0.66
1.32
MSCI World Daily Total Return Gross USD
785
-0.54
-1.31
2.31
AEX Index
477
-3.43
-5.18
12.47
-0.73
8.79
-29.11
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
Change 1 day % Change 5 days %Change YTD%
199
-0.21
-0.44
1,123
-0.10
3.10
-13.49 -5.19
43
0.30
-2.75
-18.47
50
0.98
0.14
-13.38
5,190
1.26
0.22
-17.63
492
-2.96
-1.94
-16.53
3
More CNY weakness ahead? – 13 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
2.3 10.5 11.2 2.3 -4.9 -0.4 3.8 5249.0
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
-7.9 -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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