China economy growth pressure stays and RMB remains headlines driven
Greater China Sales Traders
Summary: November data shows China is still nowhere near turnaround. Accordingly, PBOC conducted series of policy interest rate cuts across MLF, LPR etc. Fiscal stimulus measures are also on the way with local governments required to speed up debt issuance. Yuan remains US-China headlines driven and new Hong Kong Bill created further uncertainties on trade deal.
Monthly Macro Outlook: Fiscal Stimulus on The Way
- Contrary to the view expressed in previous monthly that the room for maneuver of monetary policy is limited in the short term due to the surge of CPI (related to higher pork prices), PBOC actually conducted series of policy interest rate cuts: MLF rate cut on Nov-15, OMO rate cut on Nov-18, central bank bills rate cut on Nov-19, LPR rate on Nov-20. With those consecutive monetary easing measures from PBOC, China 10-year government bond yield has retraced from October peak 3.34% to 3.16% low.
- The above-mentioned easing measures are in line with fundament economic data. In the past November, the data released overall portraits a clear big picture that the growth is still slowing down and no sign of turnaround yet. The better than expected Caixin PMI numbers in early November got overshadowed by worsening trends in trade activities, aggregate financing, PPI, industrial production and industrial profits. As shown in chart below, the continued declining producer price is weighing on industrial profit which dropped 9.9% in October, the lowest reading since data inception.