China Macro

Macro Outlook: China recovery on track yet not fully stabilized

  • A bunch of data has indicated that China is in recovery mode. The momentum in the two first months of the year was still negative but, in the light of the latest figures, it seems that the month of March confirmed the start of the economic stabilization.
  • Positive data partially reflected seasonal acceleration after the Chinese New Year, but also the impact of the massive stimulus in Q1. Based on Total Social Financing figures, China has massively opened the credit tap in Q1, equivalent to around 9% of GDP.
  • Stabilization is not broad-based yet. Latest data from China were a bit soft, such as the Caixin April Manufacturing PMI that slowed to 50.2 from 50.8. Looking into details, output dropped, and employment went back to negative. However, there is nothing to worry about. Our view is that the long-term trend still confirms the scenario of economic stabilization in China.
  • The recent announcement of RRR targeted cut to 8% for small banks, that will take place on 15 May, is the perfect example of fine-tuning policy that China is implementing. This measure will have little economic impact as it should inject only 280bn CNY or USD41bn USD in the economy. In other words, this is basically a drop in the bucket.

USDCNH spot: Range Bound Breakout

  • Range bound due to CNY fixing:
    USDCNH spot space largely remained range bound between 6.68-6.74 during the past Month. One RMB-specific reason behind this prolonged price action was due to USDCNY fixing set by PBOC, which kept intraday USDCNH spot from deviating in either direction. The spread between USDCNH spot and USDCNY spot also remained range bound around near neutral level, signalling the balanced market biases.
  • RMB under pressure:
    After USDCNH broke downward channel formed from last December’s high in March, the fallout was quite muted enforcing the ongoing range bound until the latest Trump tweet. It was widely shared by local interbank CNY traders that directional views were much balanced with marginal bias tilting to the downside, especially with asymmetric and resilient CNH price action against the backdrop of broad DXY strength. With 6.7500 broken by Trump, RMB will be under short term pressure due to stop loss order flows and short gamma options position unwind.
Source: Saxo Bank
  • Relative Strength Play: CNYKRW
    At Saxo, we offer and facilitate USDKRW, USDCNY and other onshore currencies NDF (Non-deliverable Forward) trading upon client request. Back in February, we discussed with some clients on opportunities in cross pair CNYKRW space. Two arguments were proposed: as a relative strength play, South Korea is more fragile than China during global economic growth slow down with higher dependency on exports, where weaker export will reduce KRW demands. On the other hand, gradual opening of Chinese financial market will attract additional demand for RMB. Client could construct long CNYKRW exposure by long USDKRW and short USDCNY NDF, which turns out to be the best cross pair in Asia FX space.
Source: Bloomberg

USDCNH Futures Available on Saxo

  • As an alternative instrument to express RMB views, USDCNH futures listed on Hong Kong Exchange (Ticker: CUS) and Singapore Exchange (Ticker: UC) are accessible on Saxo. The liquidity is better in Hong Kong Exchange, where the most active June contract has open interest at 18776 contracts, daily volume at 1208 contracts or USD 120.8 million notional.
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