CNY: Who cares about fundamentals

This morning's monthly data from China offered both light and shade, with the hope of stabilisation at a low level following the stimulus measures of recent months perhaps slightly outweighing. On the positive side, property sales appear to have bottomed out in October. While they were still down by more than 10% year-on-year in September, the decline in October was only 1.6%. And the pace of house price declines also slowed from the previous month. In addition, the Chinese consumer seemed to be recovering somewhat. Retail sales rose 4.8% year-on-year, well above expectations (+3.8%) according to a Bloomberg survey, Commerzbank’s FX analyst Volkmar Baur notes.

CNY to react more strongly to US president-elect’s tweets

“On the other hand, industrial production and fixed-asset investment were slightly below expectations, but not to the extent of causing concern. Two details were noteworthy however: First, the higher number of property sales has not yet had an impact on housing starts. On the contrary, they fell again slightly more than in the previous month and are now down almost 30% year-on-year. Second, retail sales show a certain anomaly.”

“Looking at the sub-categories, categories such as cosmetics, sports equipment and communication equipment show a very significant increase over the previous year. These categories are usually in high demand in June and November, when major shopping events take place on online platforms. Therefore, it remains to be seen whether the higher retail sales in October were simply purchases brought forward.”

“Either way, on balance, the slightly positive signs outweigh the negative ones, although this is not helping the CNY much this morning. In the coming weeks and months, the renminbi is more likely to react to the US dollar rather than develop much momentum of its own. In this sense, it is likely to react more strongly to tweets from the US president-elect than to fundamental developments in China itself.”

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