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MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
CNH
USD/CNH is trending higher today, we got close to 6.6800, before sentiment stabilized. The pair is being dragged higher by broader USD strength, but we are seeing outperformance on a cross basis, which has been a strong theme in recent weeks.
- This is most evident in terms of CNH/JPY, we are almost back to 20.00 for this cross, which marked the highs from mid-April. The rebound in recent weeks has been close to 6%.
- EUR/CNH is down a more modest 2% over the same period, while against higher beta currencies like AUD, the outperformance trend is much more modest.
- The re-opening theme is certainly helping China-related sentiment. Beijing and Shanghai are progressively easing restrictions, while covid case numbers continue to trend down.
- We are starting to see China equities outperform the rest of the world. The chart below plots the ratio of the MSCI China index against the MSCI world index.
Fig 1: Ratio Of MSCI China To MSCI World Index
Source: MNI - Market News/Bloomberg
- Onshore equities are also trending higher nicely, while listed tech stocks in the US, the China Golden Dragon index, are up 36% from mid-May lows.
- Reports that China is close to ending its investigation of tech company Didi is helping and is giving confidence to the idea that the worst of the tech regulatory crack down may be behind us.
- Local bond yields are also higher, see the second chart below. We are comfortably above late May lows, helped by the re-opening theme.
- Whether we are at the end of the broader easing cycle remains to be seen. At this stage the market doesn't expect any change in the 1 yr MLF rate, which is due in the middle of this month (currently at 2.85%).
- Downside data surprises may raise questions over the strength of any rebound, particularly given China's continued Covid zero stance, but until it starts weighing more on domestic yields it may not present as a headwind for CNH.
Fig 2: China Onshore Bond Yields Rebound
Source: MNI - Market News/Bloomberg
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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