CNY News

China's Bold Reforms Are Bad News For Markets

China has unveiled its most sweeping reform agenda in more than 30 years, but the market impact is likely to be net-negative.

A key meeting of Communist Party leaders wrapped up mid-week and the leaders then issued a statement which said little. The financial media and China bears had a field day bagging the meeting. Meanwhile China bulls groaned but urged patience as further announcements on reform might still be forthcoming.

Fast forward to Friday and the state news agency, Xinhua, released a 20,000 word document from the meeting. It was a bombshell as it went above and beyond the expectations of a even the most ardent China optimist.

Let’s go through the key items:

Market reform

• Accelerate yuan convertibility and interest rate reform.
• Push pricing reform for oil, gas, power, water, transportation, telecom & other sectors.
• Allow local governments to expand financing channels for construction projects, including the issuance of bonds.
• Set up free-trade zones in more areas.
• Improve treasury yield curves to reflect market supply and demand.

Property reform

• Push through legislation for a property tax and go ahead with further reforms at “an appropriate time”.

SOE reform

• 30% of profits from state assets will go toward public finances, principally social security. That’s up from 15%.
• Allow non-state involvement in government projects.
• Proactively pursue a “mixed ownership economy”.

Population reform

• Relax the one-child policy. Couples may have two children if either of the parents was an only child.
• Accelerate so-called Hukou (residentship) reform. This will allow people in rural areas easier means to move into urban areas.
• Study policies to delay the retirement age.

Political reform

• Abolish re-education labor camps.
• Place more emphasis on management of resource consumption, overcapacity, debt and the environment.
• Change policy of judging performance of officials primarily by growth rates achieved.
• Strengthen anti-corruption measures.

Legal reform

• Reduce the power of local governments over the court system and move towards an independent and fair judiciary.

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The People's Bank of China will end normal intervention in the currency market and quicken the process of full yuan convertibility, Governor Zhou Xiaochuan reportedly wrote in a guidebook that details the reforms agreed upon during last week's Communist Party meeting. The central bank will "basically" exit from regular foreign exchange intervention, he said in the book.

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An index measuring manufacturing activity in China came in with a score of 50.4 in November, flash survey results from HSBC and Markit Economics revealed on Thursday.

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China's manufacturing activity maintained relatively steady growth momentum in November, two separate surveys of company purchasing managers have revealed. Final results of the survey by Markit Economics and HSBC showed that the purchasing managers' index, a gauge of the factory sector performance, posted 50.8 in November, little changed from October reading of 50.9.

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China's non-manufacturing activity growth eased in November amid weaker new order inflow, survey results published by China Federation of Logistics and Purchasing (CFLP) and the National Bureau of Statistics revealed Monday. The non-manufacturing purchasing managers' index, that measures activity across services and construction, fell to 56 in November from 56.3 in October.

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A gauge of China's service sector performance declined slightly in November, signaling a slight slowdown in business activity, a survey by Markit Economics and HSBC revealed Wednesday. The seasonally adjusted headline services business activity index edged down to 52.5 in November from 52.6 in October. However, the reading above 50 indicated continued expansion of activity in the sector.

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Consumer prices in China were up 3.0 percent on year in November, the government said on Monday.

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China's factory sector activity slowed in December as output growth weakened and employment contracted further, preliminary results of a survey published by Markit Economics revealed Monday. The headline HSBC purchasing managers' index fell to a three-month low of 50.5 in December from 50.8 in November. However, the above-50 reading indicates expansion of the sector.

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Industrial profits in China were up 13.2 percent on year in the period of January to November, the National Bureau of Statistics said on Friday - coming in at 5.33 trillion yuan.

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China will on Wednesday see December results for its manufacturing purchasing managers' index, highlighting a light day for Asia-Pacific economic activity.

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An index measuring non-manufacturing business activity in China came in at a seasonally adjusted score of 54.6 in December, the latest survey from the China Federation of Logistics and Purchasing revealed on Friday.

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An index measuring non-manufacturing business activity in China posted a seasonally adjusted score of 54.6 in December, the latest survey from the China Federation of Logistics and Purchasing revealed on Friday. The headline figure remains comfortably above the boom-or-bust score of 50 that separates expansion from contraction, although the December reading is down sharply from 56.0 in November. Among the individual components, services business activity came in at 52.5 - down from 54.1.

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China's service sector growth slowed in December to the weakest level since August 2011 as new work inflow weakened, results of a survey by Markit Economics and HSBC showed Monday. The headline services business activity index came in at 50.9 in December, down from 52.5 in November. An index reading above 50 indicates expansion while a reading below 50 suggests contraction.

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Consumer prices in China were up 2.5 percent on year in December, the National Bureau of Statistics said on Thursday - below forecasts for 2.7 percent and slowing from 3.0 percent in November.

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China posted a merchandise trade surplus of $25.64 billion in December, the customs office said on Friday.

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Source : CNBC

China's central bank has provided emergency funding support to commercial banks and will add more cash on Tuesday, as authorities respond to a spike in cash rates ahead of a major holiday, the bank announced on Monday.

The move by the People's Bank of China (PBOC) comes after the interest rate that banks charge each other for short-term loans spiked in recent days.

Bankers and analysts say the PBOC is attempting to strike a balance by guiding interbank interest rates steadily higher to reduce excess credit growth, while avoiding an acute credit crunch that could spark panic and choke off financing to the real economy.

The central bank also appears to be responding to criticism that it failed to communicate effectively with the market during a severe cash crunch that roiled markets in June. Bankers and analysts criticized the PBOC for remaining largely silent as panic gripped the market and rumors swirled about interbank defaults.

"The central bank's operations are just a flexible response to the liquidity situation. They weren't planning to inject funds," China International Capital Corp (CICC) wrote in a note to clients late on Monday.

The PBOC said via its official Twitter-like Weibo micro-blog that it had provided an unspecified amount of funding to the largest banks via its Short-term Lending Facility (SLF).

The central bank also said it will inject further cash into the banking system at regularly scheduled open market operations on Tuesday. The central bank has not injected funds through such operations since December 24.

Indeed, long-time market watchers said it's virtually unprecedented for the central bank to openly declare its intention to inject or withdraw funds at regularly scheduled open market operations. Typically, the market learns of these operations only after they are conducted.

But in an echo of previous statements, the PBOC again urged banks to improve liquidity management. Regulators have also expressed concern about some banks' excessive reliance on short-term funding markets.

Bankers say the central bank is using higher money market rates as a tool to curb explosive growth in economy-wide debt since 2008, especially off-balance sheet credit that banks often fund through interbank borrowing.

In addition to the support for big banks and the planned injection on Tuesday, the central bank will also offer overnight, seven-day, and 14-day funds to smaller banks via SLF, it said in an announcement on its website.

The PBOC will offer up to 120 billion yuan ($19.8 billion) in funds to smaller banks through this channel, according to a central bank document obtained by Reuters.

Analysts say smaller banks rely the most on money-market funding because their smaller branch networks provide them less access to customer deposits.

The sources said banks incorporated at the regional or local level can apply to the PBOC for fund injections via SLF when the interest rate on the overnight bond repurchase rate exceeds 5 percent, the seven-day repo rate exceeds 7 percent, or the 14-day repo rate exceeds 8 percent, according to three sources with direct knowledge of the new policy.

Those thresholds will remain in effect through the Lunar New Year holiday which starts on January 31. After that the expanded SLF mechanism will remain in place for small banks but the thresholds could change, the sources said.

A PBOC spokesman declined to comment.

The central bank previously used its SLF to provide one- to three-month loans to commercial banks. The latest expansion offers cash injections of 14 days or less.

The overnight repo rate closed at 4.30 percent on a weighted-average basis on Monday but individual trades occurred as high as 9 percent.

The seven- and 14-day rates peaked on Monday at 10 percent and 7.8 percent, respectively, according to data from the National Interbank Funding Center.

Traders attributed the higher rates to elevated cash demand in the run-up to the New Year holiday.

The relaunch of initial public offerings of stock is also boosting cash demand this week. IPOs, restarted last week after a 14-month freeze, drive demand for short-term funding as investors need to deposit funds with underwriters in order to subscribe to new listings.

Eight companies said on Monday that they would list on the Shenzhen Stock Exchange on Tuesday, the first listings on China's smaller bourse since the freeze ended.

Traders had previously predicted funding conditions would tighten in late January. The latest funding squeeze follows severe cash crunches in late June and late December.

The seven-day rate peaked at 28 percent on June 20, the highest trade on record, and soared again to 10 percent on December 20 and 23.

An index measuring manufacturing activity in China came in with a score of 49.6 in January, the latest survey from HSBC and Markit Economics revealed on Thursday - hitting a six-month low.

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An index monitoring manufacturing activity in China reflected contraction in January, the latest PMI from HSBC and Markit Economics revealed on Thursday, coming in with a seasonally adjusted score of 49.5.

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Consumer prices in China were up 2.5 percent on year in January, the National Bureau of Statistics said on Friday.


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Foreign direct investment into China increased notably in January despite a slight economic slowdown seen during the final quarter of 2013, figures from the Ministry of Commerce showed Tuesday.

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A leading index measuring economic activity in China jumped 1.2 percent in January, the latest report from the Conference Board revealed on Tuesday, standing at 283.4.

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An index measuring manufacturing activity in China came in with a score of 48.5 in February, the latest survey from HSBC and Markit Economics revealed on Monday.

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2013-03-08 02:00 GMT (or 03:00 MQ MT5 time) | [CNY - Trade Balance]

past data is 31.9B
forecast data is 14.5B
actual data is -23.0B according to the latest press release

if actual > forecast = good for currency (for CNY in our case)

==========

Chinese exports declined unexpectedly, while growth in imports accelerated in February, taking the trade balance surprisingly to a negative zone. Exports declined sharply by 18.1 percent, reversing the 10.6 percent increase in January, data from the General Administration of Customs showed Saturday. The decline was in contrast to a 7.5 percent rise forecast by economists.

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China's industrial production, retail sales and fixed investment grew less than expected in the first two months of 2014, underscoring the moderate slowdown in the region as measures to clamp down credit suppressed investment.

Industrial production increased 8.6 percent year-on-year in the January to February period, the National Bureau of Statistics said Thursday. Production was forecast to grow 9.5 percent, following a 9.7 percent rise in December.

Another report from the statistical office showed that retail sales grew by a double-digit 11.8 percent year-on-year during the two months, which was weaker than the 13.5 percent increase forecast by economists.

Further, urban fixed asset investment during January to February increased 17.9 percent from the last year, which was also slower than expectations for 19.4 percent.

The government targets 17.5 percent fixed asset investment growth for the whole of 2014, after it advanced 19.6 percent in 2013.

Nonetheless, economic data in January and February are usually distorted by the Lunar New Year holiday.

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China unveiled measures to speed urbanization in a bid to provide impetus to economic growth through lifting income and consumption among rural residents.In its urbanization plan for 2014-2020, the government said Sunday it will reform "hukou" registration, and improve water safety as well as air quality.

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Two-Way Yuan Volatility Makes USDCNY Trading More Attractive

As the Chinese currency is experiencing its largest weekly decline ever, it is becoming clear that yuan trading could become the newest marketing tool for attracting Asian clients to Forex trading. The widening of the yuan trading band to 2% by the People’s Bank Of China (PBOC) last weekend is poised to present immediate results. With the Chinese economy slowing, the PBOC is looking to allow more two-way trading and it’s guiding the markets to depreciate the yuan for the first time since it was floated back in 2005.

Start Preparing for the Asian EUR/USD

Markets have started to price in increasing implied volatility which removes the obstacle to two-way trading that has up until now been provided by the simple carry trade that has worked for several years. The Chinese currency will become more attractive for retail forex traders since steady moves and an increased amount of market flows will boost its appeal.

This can be used by retail Forex brokers to target an increasing amount of potential FX market traders hailing from Asia. Marketing efforts will have an increased effect once there is a pair that prospective clients around the region can recognize as being an integral part of their economies. The Asian equivalent of the EUR/USD has been difficult to trade for domestic clients within China, however the latest steps by the PBOC are revealing its commitment to transform its foreign exchange regime and commit to a more market oriented mechanism of rate setting.

One-way Ticket… No More

As one-way betting on the USD/CNY pair becomes obsolete we should expect increased volatility to stay with us for a while. Leveraged bets through the offshore yuan are unwinding and since this has been an almost constant carry trade since the managed float was introduced back in 2005, we can expect market activity to continue gradually increasing.

http://forexmagnates.com/wp-content/...14/03/pboc.jpg

The Chinese Government has realized the implications of a constantly rising exchange rate on its local economy and since the PBOC is not feeling direct pressure to fight inflation it is taking the opportunity to relax its policy through the exchange rate instead of moving interest rates. According to sources close to dealings in the Chinese yuan market, the Chinese Central Bank has been an active participant in the recent move by actively buying foreign currencies.

The next move would be an introduction of more flexibility in the daily fixing mechanism that dictates price swings. There is already an example in the Asia-Pacific region that has combined market forces with solid control from a central bank. The Monetary Authority of Singapore (MAS) is managing the float of the Singapore dollar by directly intervening in the FX market. While inflation rates in the country have been quite volatile during the past 10 years, in the end its Consumer Price Index has averaged just about 2%, which is the target of most developed economies’ central banks.

Two-way Volatility Makes USD/CNY Trading Attractive for Retail Traders

Another important function that two-way volatility completes for the Chinese authorities is the reduction of hot money inflows. Considering the country’s massive stash of FX reserves it shouldn’t be a problem for the PBOC even if we were to observe some sort of a liquidity squeeze. It also opens the flood gates for even more Chinese products to be exported as the perception about an ever-appreciating Chinese yuan will grind to a halt.

Retail traders are used to not paying that much attention to the Chinese yuan because of low volatility and because it has been going one way for almost a decade. This has made them reluctant to participate in a long unfolding trend, by being too fearful to jump on the bandwagon before it crashes, or too reluctant to try and pick up the turning point that might never come. Well that’s now history and some crucial opportunities are appearing.

The main benefit to forex brokerages who are operating in the region is their ability to start offering a more attractive product to their prospective customers and break the news that clients in Asia can now trade Asia’s most important currency actively. The days of the ever-appreciating Chinese yuan are now over and the doors for the new EUR/USD in the face of USD/CNY are gradually opening.

China's manufacturing sector fell deeper into contraction in March, the latest flash PMI from HSBC and Markit Economics revealed on Monday. The index came in with a seasonally adjusted score of 48.1, touching an eight-month low. The headline figure is down from 48.5 in February, and it was well shy of forecasts for 48.7 - and it moves the index further below the mark of 50 that separates expansion from contraction.

GBPUSD M5 : 10 pips price movement by CNY - Flash Manufacturing PMI news event

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AUDUSD M5 : 32 pips price movement by CNY - Flash Manufacturing PMI news event

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EURUSD M5 : 7 pips price movement by CNY - Flash Manufacturing PMI news event

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NZDUSD M5 : 16 pips price movement by CNY - Flash Manufacturing PMI news event

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The World Bank advised China to tackle environmental degradation and other strains of rapid urbanization by systematically changing how it allocates land, people and capital across the nation.

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The service sector in China expanded at a faster pace in March, the latest PMI from HSBC and Markit Economics revealed on Thursday, coming in with a four-month high score of 51.9. That's up from 51.0 in February, and it moves farther above the boom-or-bust line of 50 that separates expansion from contraction.

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Fitch Ratings maintained China's sovereign ratings and 'stable' outlook on Friday, citing strong external balance sheet and the less volatile economic growth.

Fitch affirmed China's long-term foreign and local currency Issuer Default Ratings at 'A+'. The 'stable' outlook reflects Fitch's view that upside and downside risks to the rating are balanced.

The sovereign external balance sheet is China's core sovereign credit strength. China's foreign reserves rose to $3.82 trillion at end-2013. This was equal to 19.2 months of current external payments.

China's growth model faces tightening constraints from the rapidly increasing burden of leverage in the economy and from the deteriorating ability of the economy to absorb additional investment profitably.

According to Fitch, China's GDP growth would remain less volatile out to 2015 than the 'A' range median in Fitch's projections. However, the re-balancing process entails some risk of sharply higher volatility if things go less smoothly than Fitch expects.

Further, Fitch estimates the level of aggregate financing in China's economy at 217 percent of GDP at end-2013, up from 198 percent at end-2012. The authorities acted more aggressively to contain risks to financial stability since mid-2013.

However, fundamental credit weaknesses, including low average incomes and weak scores for governance, weigh on the credit profile relative to 'A' range peers.

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China posted a merchandise trade surplus of $7.71 billion in March, the customs office said on Thursday.

That topped forecasts for a surplus of $0.9 billion following the $23.0 billion shortfall - largely due to the Lunar New Year holiday - in the previous month.

Exports were down 6.6 percent on year, missing expectations for an increase of 4.0 percent following the 18.1 percent contraction in February.

Imports tumbled an annual 11.3 percent versus forecasts for a gain of 2.4 percent following the 10.1 percent increase a month earlier.

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Inflation in China was up 2.4 percent on year in March, the government said on Friday.

That was in line with expectations and up from 2.0 percent in February.

Among the individual components, food prices jumped 4.1 percent on year, while non-food prices added 1.5 percent.

The data also showed that producer prices remained stuck in deflation, contracting 2.3 percent on year. That missed forecasts for -2.2 percent following the 2.0 percent decline in the previous month.

EURUSD M5 : 6 pips price movement by CNY - CPI news event :

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AUDUSD M5 : 17 pips price movement by CNY - CPI news event :

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China's gross domestic product expanded 7.4 percent on year in the first quarter of 2014, the government said on Wednesday.

That topped expectations for 7.3 percent following the 7.7 percent gain in the previous three months.

On a seasonally adjusted quarterly basis, GDP added 1.4 percent - shy of expectations for 1.5 percent and slowing from 1.8 percent in the three months prior.

The government also revealed that industrial production gained 8.8 percent on year in March - missing forecasts for 9.0 percent but up from 8.6 percent in February.

Retail sales climbed 12.2 percent, beating expectations for 12.1 percent and up from 11.8 percent in the previous month.

Fixed-asset investment climbed an annual 17.6 percent - missing forecasts for 18.0 percent and down from 17.9 percent a month earlier.

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China's leading economic index was up 1.2 percent on month in March, the Conference Board said on Thursday.

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China's manufacturing sector continued to contract in April, the latest survey from HSBC and Markit Economics revealed on Monday - with a final purchasing managers' index score of 48.1.

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Activity in China's services sectors continued to expand in April, albeit at a slower pace, the latest survey from HSBC and Markit Economics revealed on Wednesday.

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China saw a merchandise trade surplus of $18.5 billion in April, the Customs Office said on Thursday.

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Consumer prices in China were up 1.8 percent on year in April, the National Bureau of Statistics said on Friday.

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An index monitoring manufacturing activity in China came in with a score of 49.7 in May, the latest flash estimate from HSBC and Markit Economics revealed on Thursday. That topped forecasts for a score of 48.3 and was up sharply from 48.1 in April - and while it does remain below the line of 50 that separates expansion from contraction, the May reading represents a five-month high.

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China will on Friday see April numbers for the leading and coincident indexes from the Conference Board, highlighting a light day for Asia-Pacific economic activity.

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