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Following the announcement of lower economic growth numbers for 3Q 2018 of 6.50%, lowest since 2009 due to further weakness in the manufacturing sector amid current trade war situation, the Chinese market has been losing ground in the month of October, erasing gains from the first week of November 2018. The Fed MPC meeting from last Friday, which tends towards further tightening in December 2018 pushed Asian shares downward, marking a sixth weekly loss in the last seven weeks starting from the 24. September 2018 for the Hong Kong Hang Seng index.
The last weekly gains from the first week of November essentially came from the support of higher expectations that an agreement from both US President Donald Trump and Chinese President Xi Jinping could potentially come out from G20 meeting taking place in Argentina by the end of the year. During the corresponding week, the Hong Kong Hang Seng index came highest since December 2011, at +7.16% amid risk-on sentiment across the board. On data side, it appears that Chinese inflation remained stable in October, given by y/y October CPI data at 2.50% and in line with last month gauge while recent export growth data estimated at 20.10% is highest since the last 8 months.
However it remains clear that the trend should be turning at some point, as the outlook of a weaker Renminbi would necessarily cause imports to be more costly which would ultimately end up with an acceleration of inflation. As for exports, there are decent reasons to think that the approaching US tariffs of 25% on $ 200 billion of Chinese imports by year end encourages US importers to initiate larger Chinese good orders in anticipation.
For now, Chinese exports continue to beat records, given at $ 42.72 billion.
Accordingly, we expect the Chinese economy to be facing headwinds, which should weigh on the growth outlook of 2019 also. For these reasons, Chinese authorities remain committed to maintaining their stimulus policies while paying careful attention to the credit side. The scenario of a trade war agreement between both US and China nations would be a Renminbi-positive event. To date, the USD/CNY pair did not cross the 7 range since 31. March 2008.
Following the announcement of lower economic growth numbers for 3Q 2018 of 6.50%, lowest since 2009 due to further weakness in the manufacturing sector amid current trade war situation, the Chinese market has been losing ground in the month of October, erasing gains from the first week of November 2018. The Fed MPC meeting from last Friday, which tends towards further tightening in December 2018 pushed Asian shares downward, marking a sixth weekly loss in the last seven weeks starting from the 24. September 2018 for the Hong Kong Hang Seng index.
The last weekly gains from the first week of November essentially came from the support of higher expectations that an agreement from both US President Donald Trump and Chinese President Xi Jinping could potentially come out from G20 meeting taking place in Argentina by the end of the year. During the corresponding week, the Hong Kong Hang Seng index came highest since December 2011, at +7.16% amid risk-on sentiment across the board. On data side, it appears that Chinese inflation remained stable in October, given by y/y October CPI data at 2.50% and in line with last month gauge while recent export growth data estimated at 20.10% is highest since the last 8 months.
However it remains clear that the trend should be turning at some point, as the outlook of a weaker Renminbi would necessarily cause imports to be more costly which would ultimately end up with an acceleration of inflation. As for exports, there are decent reasons to think that the approaching US tariffs of 25% on $ 200 billion of Chinese imports by year end encourages US importers to initiate larger Chinese good orders in anticipation.
For now, Chinese exports continue to beat records, given at $ 42.72 billion.
Accordingly, we expect the Chinese economy to be facing headwinds, which should weigh on the growth outlook of 2019 also. For these reasons, Chinese authorities remain committed to maintaining their stimulus policies while paying careful attention to the credit side. The scenario of a trade war agreement between both US and China nations would be a Renminbi-positive event. To date, the USD/CNY pair did not cross the 7 range since 31. March 2008.