Why is China not following Fed rate cut and where will USDCNH go?
Greater China Sales Traders
Summary: We estimate that PBOC's monetary policy easing tendency will continue to be contained amid slowing economy growth. A key concern now is skyrocketing pork retail price and highly correlated CPI. USDCNH spot will probably revisit 7.0 big figure level at conjunction of multiple supporting factors.
Monthly Macro Outlook: Fine Tuning
- The latest Chinese GDP print, at 6% in the third quarter, was not really a surprise for those monitoring closely high-frequency data. We estimate there is no sense of urgency to massively stimulate further the economy. Except for freight volume growth, the most important data we monitor for the Chinese economy are back to life: the PMI manufacturing is standing at 51.4, real estate FAI growth remains well-oriented and the CNY exchange rate has been stable over the past weeks. These indicators tend to validate the fine-tuning strategy implemented by the authorities.
- The room for manoeuvre of monetary policy is limited in the short term due to the surge of CPI (related to higher pork prices), deflated PPI and weakness of the monetary policy transmission mechanism to the private sector. However, domestic analysts’ views are widely divided regarding whether PBOC should inject stimulus with current CPI condition. Some call for monetary policy not to be shy of inflation. It added that there was still a need to prioritize stimulating demand. Nevertheless, PBOC is not following the US Fed and ECB in cutting rates and maintain its prudent monetary orientation.
- We expect that Chinese stimulus will be limited in coming months and will mostly target some specific sectors, especially the real estate sector (which represents 80% of Chinese people’s wealth). The chat below shows the high correlation between overall CPI and port price. The economic rationale behind this high correlation include Chinese food protein source structure and spillover effect.