FUNDAMENTAL FORECAST FOR CNH: Neutral
- China’s domestic investment improved but consumption remained weak.
- US-China resumed high-level talks, though still pending on major disputes.
- PBOC may continue to guide the Yuan to curb the risk of financial instability.
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The Chinese Yuan reversed losses from last week and gained against the U.S. Dollar[2] this week; at the same time, it weakened against the rest of major currencies, except the GBP[3]. Chinese fundamentals saw uneven development in October, bringing a mixed impact to the Yuan. Looking forward, the Dollar/Yuan may continue to retrace, amid a light Chinese economic calendar. Major event risks could come from the US-China trade war and the PBOC’s guidance.
CHINESE FUNDAMENTALS – POSITIVE & NEGATIVE CHANGES
Positive: Signs are showing that China’s fiscal policy may have begun to affect the economy as designated. The Fixed Asset Investment Excluding Rural Households picked up for the second consecutive month, to 5.7% in October, after the gauge hit an 18-year low of 5.3% in August. Infrastructure projects, led by the government, take a large proportion among all fixed assets investment; this is a measure of fiscal policy. More measures include cutting taxes and fees: China’s Finance Minister Liu Kun told on Monday that the fiscal cuts in 2018 will exceed 1.3 trillion yuan, greater than the 1.1 trillion yuan target set at the beginning of this year.
Negative: the demand side remains weak. China’s October Retail Sales dropped to a five-month low level of 8.6%, and is close to the 15-year low of 8.5%
