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My lovely china surprises the market by weakening RMB on Thursday
The People's Bank of China set the yuan's central parity rate against the U.S. dollar at 6.3737 on Thursday, a second sequential major drop and down from Wednesday's 6.3598. This follows a weakened fixing of 6.3598 on Wednesday, down from the record high fixing of 6.3483 on Tuesday, just before the Senate decided to launch the first salvo in the Sino-US trade wars.
Surely news of the collapse in Chinese exports will merely reinforce the theme that the USDCNY is in sudden need of devaluation and be a loud slap in the face of the Senate which will now come face to face with its utter worthlessness. In Hong Kong, the offshore yuan spot rate was fixed at 6.4407 against the greenback on Thursday, compared with Wednesday's 6.4923. The fixing is based on an average of bids from 15 participating banks and is calculated by the Treasury Markets Association, a Hong Kong-based industry group. We are hardly the only ones who noticed the escalation in spot USDCNY wars by the PBOC, which now appears hell bent on showing the US its peg can go lower in addition to higher (inflationary consequences be damned) - from the WSJ: "The yuan fell sharply against the U.S. dollar in early Thursday trade, after the Chinese central bank surprised the market by guiding its currency weaker for the second consecutive day despite the dollar's global weakness." So even as the USD is plunging against the hope-driven Euro, which has soared 600 pips in the past week on nothing, the USD is now jumping against the CNY for no other reason than mere demagogic policy.
China’s exports rose the least inseven months and the customs bureau warned of “severe”challenges as the global economic outlook dims, giving PremierWen Jiabao’s government less incentive to let the yuan rise.
Exports rose a less-than-forecast 17.1 percent in Septemberfrom a year earlier, the bureau’s data showed in Beijing. Thetrade surplus was $14.51 billion, the smallest since May. Growthin shipments to Europe, China’s biggest export market, slumpedto 9.8 percent, from 22 percent, amid the sovereign-debt crisisin euro-region nations.
China may move to restrain the yuan, which has gained themost against the dollar among 25 emerging-market currencies inthe past four years, even after the U.S. Senate voted this weekfor legislation aimed at forcing faster appreciation. The riskof a trade slump may also encourage China to refrain fromraising interest rates and to add to support for companies afterunveiling tax breaks for small businesses yesterday.
“Although Washington is ramping up the pressure on Beijingto move faster on the currency, Chinese officials will be ableto cite today’s data as evidence that exporters are alreadyfeeling the pinch,” said Brian Jackson, a Hong Kong-basedstrategist with Royal Bank of Canada. Jackson noted that yuangains against the euro add to risks for exports to the region.
Yuan Against Euro The Chinese currency has gained 4.3 percent versus the eurosince the start of August. The yuan slipped 0.3 percent to6.3763 per dollar as of 12:43 p.m. in Shanghai. Stocks in Chinarose, joining a rally across Asia. The benchmark ShanghaiComposite Index was 0.5 percent higher at 2,432.19 at the 11:30a.m. local-time break.
The U.S. may today report a trade deficit of $45.8 billionfor August, up from $44.8 billion in July, according to themedian forecast in a Bloomberg News survey.
China’s imports advanced 20.9 percent in September, lessthan analysts’ 24.2 percent median estimate and a 30 percentgain in August. Export growth compared with a median forecast of20.5 percent and a rise of 24.5 percent in August.
“The leading indicators from the developed economiesindicate that worse will follow” for exports, said Yao Wei, aHong Kong-based economist at Societe Generale AG.
‘Sliding’ Confidence The yuan’s appreciation has weakened competitiveness andexporters are afraid to accept large or long-term orders, thecustoms bureau said in a statement. “Serious developmentproblems, high unemployment rates and sliding consumerconfidence” in the EU, U.S. and Japan, and slowing growth inemerging economies “present severe challenges,” it said.
“Domestic demand is still quite strong,” said Zhang Zhiwei, a Hong Kong-based economist with Nomura Holdings Inc.
The import slowdown was driven mainly by weakeningpurchases from companies processing goods for re-export, Zhangsaid. China’s passenger-car sales rose at a faster pace for afourth straight month in September, climbing 8.8 percent, theChina Association of Automobile Manufacturers said today.
Imports rose to $155.2 billion, just shy of August’s record.Purchases of copper climbed to the highest level in 16 months aslower prices lured traders to place orders and replenish stocks.
A reduction in duties on some commodities including refinedoil starting July 1 led to a 77 percent jump in imports of suchgoods in the third quarter from a year earlier, the customsbureau said.
Full-Year Forecasts The agency estimates full-year export growth will drop to18 percent from 31 percent in 2010 and expansion in imports willease to 21 percent from 39 percent. The trade surplus may narrowto about $170 billion from $183 billion last year, Lu Peijun,vice minister at the customs bureau, said. The excess hasdropped every year from a record $295 billion in 2008.
“A major shift in policy is unlikely until early Decemberwhen the central economic work conference is usually held,although the government is already taking some selective easingmeasures such as the support extended to small firms,” saidChang Jian, an economist at Barclays Capital in Hong Kong whoformerly worked for the Hong Kong Monetary Authority and theWorld Bank.
The government will provide financial support andpreferential tax policies for small companies, the State Councilsaid in a statement yesterday, after a meeting where Premier Wen Jiabao presided. The government will be more tolerant of badloan ratios for small-company loans, the cabinet said.
Exporters' Woes The collapse of some manufacturers in Wenzhou city inZhejiang province has highlighted concern that small companiesare facing a credit squeeze after monetary tightening.
In Guangdong, another export hub, footwear maker Wing KwaiTrading Co. says it faces rising wage costs, weaker demand and astronger yuan.
“Demand for our products has been falling because of theeconomic outlook,” said company owner David Huang beforetoday’s trade data. “The yuan keeps rising and workers areasking for higher and higher wages.”
China’s foreign ministry warned U.S. lawmakers yesterdaythat the proposed bill allowing penalties against countries thatundervalue their currencies would damage bilateral trade andrisks undermining the global recovery. The legislation will nowmove to the Republican-controlled House of Representatives.
“Trade tensions, at least the rhetoric, are likely to heatup between China and the U.S. as the global outlookdeteriorates,” Barclays’ Chang said.
A stronger yuan would help China curb inflation and reducethe trade surplus, she said. A government report tomorrow mayshow consumer prices climbed 6.1 percent last month from a yearearlier, according to a Bloomberg News survey of analysts. Thatcompares with the government’s full-year target of 4 percent.
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