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Economic Uncertainty Weighs on Domestic Equities and CNY, Sends 10Y Yield Lower

CHINA
  • The rise in uncertainty over the economic outlook due to surging covid cases has been weighing on domestic risky assets and the CNY in the past week.
  • China ‘reopening’ narrative has been fading as the arrival of the BA5 coronavirus variant is threatening the country of renewed lockdowns (i.e. Shanghai), which will lead to further downward revision in growth expectations.
  • Hang Seng Index has been falling since the start of the month, breaking back below its 21,291 support line, which corresponds to the 23.6% Fibo retracement of the 18,235.50 – 31,183 range (see chart).
    • Next support to watch on the downside stands at 20,000.
  • USDCNY has been retracing higher after remaining steady at around the 6.70 level in the past month. The pair is currently trading at its highest level since mid-June.
  • China 10Y yield has also been consolidating lower amid growing concerns over growth expectations; the 10Y yield did not manage to break trough its 200DMA and is now trading back below the 2.80% level.
  • In addition, China 7D IB repo rate has been falling since the start of the month, with money market operators pricing in new cuts in the policy rate to offset the potential economic shock if officials re-introduce lockdown policies in major cities.

Source: Bloomberg/MNI

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  • The rise in uncertainty over the economic outlook due to surging covid cases has been weighing on domestic risky assets and the CNY in the past week.
  • China ‘reopening’ narrative has been fading as the arrival of the BA5 coronavirus variant is threatening the country of renewed lockdowns (i.e. Shanghai), which will lead to further downward revision in growth expectations.
  • Hang Seng Index has been falling since the start of the month, breaking back below its 21,291 support line, which corresponds to the 23.6% Fibo retracement of the 18,235.50 – 31,183 range (see chart).
    • Next support to watch on the downside stands at 20,000.
  • USDCNY has been retracing higher after remaining steady at around the 6.70 level in the past month. The pair is currently trading at its highest level since mid-June.
  • China 10Y yield has also been consolidating lower amid growing concerns over growth expectations; the 10Y yield did not manage to break trough its 200DMA and is now trading back below the 2.80% level.
  • In addition, China 7D IB repo rate has been falling since the start of the month, with money market operators pricing in new cuts in the policy rate to offset the potential economic shock if officials re-introduce lockdown policies in major cities.

Source: Bloomberg/MNI