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Reporting on key macro data at the time of release.
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- The divergence persists between the CNYJPY exchange rate and Chinese equities as the deceleration in the domestic economy, the contraction in liquidity and the government's crackdown on a range of industries have been weighing on risky assets.
- CNYJPY has historically shown strong co-movement with equities (i.e. Hang Seng index, see chart).
- In addition, periods of Yen weakness have generally been associated with trending stock market (also known as 'risk on' environment).
- The JPY has been the weakest performing currency against the CNY among the G10 world, down 12.3% since the start of the year.
- CNY has remained strong this year as the significant divergence between DM central banks and PBoC (PBoC assets are almost unchanged since the pandemic) has been supporting the yuan.
- With growth expectations expected to be revised to the downside amid rising Covid uncertainty, Chinese equities could reach new lows in the near term.