USDCNH has stabilisaed after recovering.......>

CHINA: USDCNH has stabilisaed after recovering much of its earlier losses to

trade at 6.9195 last. The yuan has been supported by the continued rally in

Chinese stocks, which are trading back nearly daily highs, averaging almost 3%

gains.

- However, rate markets remains largely unresponsive as 2-year swaps have

retraced most of their gains to trade at 2.83%, just 2.3bps up on the day, which

partly explains the failure of the yuan to sustain gains. 

- US-China 2-year swap spreads have actually risen back out to weekly highs at

18.5bps.

- The key question is whether the recovery in the stock market can shift the

PBOC bias in the hawkish direction. The thawing of trade relations with China

and the slight beat in the Caixin manufacturing today (50.2 vs 50.1 exp)

suggests the backdrop is improving.