A little more than a week ago, China released its data for second quarter GDP growth alongside other important data sets that, entwined, give us a glimpse into the health of the world’s second largest economy and a framework for FX strategy in the Asian space.
China’s second quarter GDP growth hit 6.7% for the second quarter year-on-year, the same growth rate as the first quarter and moderately higher than the 6.6% called for in Reuters’ consensus poll. The major contributor to GDP growth was consumption, a rather positive sign that consumers are becoming a more prominent engine in the Chinese economy. This was further enforced when China’s retail sales posted growth of 10.6% in June compared to 10.0% in May.
But on the flip side, there were some negative signs as well, and plenty of them. GDP growth was, indeed, driven by consumption but the growth in the services sector, or the tertiary industry as it is referred to, was 7.6% Year on Year. That is simply not enough to accommodate China’s weakness in manufacturing and not exactly in line with China’s growth plans. Continue reading "China Recap: The Good And The Bad"→
China has resorted to its old habit of stimulating the economy by allowing the Yuan weaken. But while the "remedy" has yet to work its wonders. The side effects, are already emerging—inflation is on the rise.
The People's Bank of China, China's central bank, ought to decide - support China's manufacturing or curb inflation.
What will the Chinese central bank do? And equally important, how will the dollar respond?
China's Central Bank: The Logic
In order for us to try and gauge the next move by China's central bank, we must delve first into the logic. In other words, what is the central bank considering? Now, that's not an easy undertaking, by any stretch of the imagination. Nevertheless, the task has turned a tiny bit simpler. Last month, in an interview with the Caixin Weekly, the Governor of the People's Bank of China, Zhou Xiaochuan, outlined the central bank's policy.
China's economy is slowing. Its stock market began to crash back in July. And the volatility rocking financial markets has been widely linked to the recent yuan devaluations by China's central bank.
"Surprise" has been a common word used by investors and financial pundits to describe the devaluation -- as in, "China's central bank surprise devaluation of yuan."
But what if we told you it wasn't a surprise -- it was in fact an expected event?
Below are three excerpts from analysis that EWI's own Chris Carolan published in his Sun-Tue-Thu Asian-Pacific Short Term Update on July 30 (several days before China's central bank first move to devalue the yuan against the U.S. dollar), then on Aug. 9 and Aug.11 (bold added).
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