China: Cyclical data starts to falter again - RBS

Research Team at RBS, notes that the China’s cyclical data has started to falter again after picking up earlier this year.

Key Quotes

“July’s exports continue to contract at 4.4% y/y while import growth was particularly weak at 12.5% y/y in dollar terms. July’s industrial production data fell to 6.0%y/y from 6.2%y/y. July’s retail sales expanded less at 10.2%y/y compared to 10.6%y/y in June. July’s fixed assets growth decreased to 8.1%y/y from 9.0%y/y and July’s new loans only rose by CNY464bn.

Policymakers, however, appear unlikely to ease policy further in the near term. RBS Economics notes the authorities have just begun to retreat from this year’s property stimulus, new infrastructure projects would take time to roll out and the ‘authoritative person’s’ interview in the middle of the year signaled the threshold for further monetary easing is high.

Weaker growth in the second half of the year is thus likely to weigh on the yuan’s outlook. The People’s Bank of China continues to keep dollar-yuan’s onshore fixing in a 6.606.70 range in Q3’16 as the dollar globally treads water while ongoing capital outflows keep offsetting China’s monthly trade surpluses.

The authorities are likely to keep the currency stable until the next G20 meeting on September 45 in Hangzhou. But thereafter dollar-yuan’s fixing rates are set to rise as the market anticipates the Fed raising interest rates this year. The exchange rate is likely to head towards 7.00 this year if the Fed hikes and forecasts further rate increases in 2017.”