This daily digest focuses on Yuan rates, major Chinese economic data, market sentiment, new developments in China’s foreign exchange policies, changes in financial market regulations, as well as market news typically available only in Chinese-language sources.
– The Yuan fix set by the PBOC dropped to its weakest level against the U.S. Dollar in over 8 years on Wednesday.
– A leading Chinese coal index dropped for the second week though remained at relatively high level.
– Chinese FX regulator told that the capital outflow pressure was eased in October with narrowed foreign exchange sales.
Yuan Rates
- The PBOC weakened the Yuan against the U.S. Dollar (via Yuan reference rate) for the ninth trading day in a row on Wednesday amid the Dollar strength; the Yuan was lowered by -97 pips or -0.14% to 6.8592, the weakest level since August 19th, 2008. Following the Central Bank’s guidance, both offshore and onshore Yuan extended losses against the Greenback and set fresh records: The USD/CNH touched 6.8956, a new all-time low for the offshore Yuan; the USD/CNY hit 6.8773, the lowest level for onshore Yuan in nearly 8 years.
Data downloaded from Bloomberg; chart prepared by Renee Mu.
Key Price Indicators
– Chinese regulators have shown increasing tolerance in Yuan moves driven by external factors. However, they have been introducing a series of tightened policies in the effort of curbing the soaring coal spot and futures prices. The rally in coal prices not only interrupts the pace of production cuts, one of the five national targets in 2016, but also increases the risk of price bubbles coupled with hikes in property prices, preventing China’s Central Bank from adding liquidity through lowering reserve requirement ratio (RRR).
Bohai-Rim Steam-Coal Price Index (BSPI), a leading indicator for Chinese coal prices, increased for 18 consecutive weeks from the end of June to early November. The peak level of 607 Yuan/ton that reached in the week of October 26th to November 1st was 63.6% higher than the level at the beginning of the year. The months-long rally is not fully justified by fundamentals, as the coal industry is still facing over-supply in general despite the temporary increase in demand ahead of winter.
