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5 May 2016
China: Service sector weakens in April - Rabobank
Piotr Matys, EM FX Strategist at Rabobank, notes that the economic activity in China’s services sector weakened in April as the Caixin/Markit’s PMI fell to 51.8 from 52.2 in previous month.
Key Quotes
“Despite the substantial amount of stimulus that Chinese officials have injected into the economy since the beginning of the year to prevent a hard landing, the Composite Index edged lower to 50.8 in April from 51.3 in March.
With the US dollar rallying against its G10 peers, the People’s Bank of China lowered the yuan’s daily fixing by 0.28% to 6.5128 today – the lowest since March 28. If USD/CNY gains a better upside traction (it is still trading well below the year-to-date high at 6.5962 set in January), it will reignite market speculation that Beijing may allow the yuan to weaken further to boost economic activity.
As witnessed at the beginning of the year and in the middle of last year, a softer yuan would likely fuel risk aversion at the time when the EM currencies are already struggling to hold to their gains. Although it is not reflected yet in the Fed funds futures, some market participants may intend to position themselves for the prospect of further monetary policy tightening in the US.”
Key Quotes
“Despite the substantial amount of stimulus that Chinese officials have injected into the economy since the beginning of the year to prevent a hard landing, the Composite Index edged lower to 50.8 in April from 51.3 in March.
With the US dollar rallying against its G10 peers, the People’s Bank of China lowered the yuan’s daily fixing by 0.28% to 6.5128 today – the lowest since March 28. If USD/CNY gains a better upside traction (it is still trading well below the year-to-date high at 6.5962 set in January), it will reignite market speculation that Beijing may allow the yuan to weaken further to boost economic activity.
As witnessed at the beginning of the year and in the middle of last year, a softer yuan would likely fuel risk aversion at the time when the EM currencies are already struggling to hold to their gains. Although it is not reflected yet in the Fed funds futures, some market participants may intend to position themselves for the prospect of further monetary policy tightening in the US.”