Capital Markets: "PBOC Eases, but the Yuan Firms"

 Last night I began writing an introduction to a ZeroHedge post on China's easing and realized my thinking was in conflict with the ZH piece, and not just opinion but actual facts of the reaction of the Chinese currency. Here's what I scribbled before quitting and eating a strawberry:

But USDCNY is working toward a stronger yuan, 6.3472 last and approaching the December low, 6.3434 which was the strongest print since 2018. The Chinese powers-that-be seem more interested in being able to buy dollars or dollar-denominated assets rather than gunning for further export competitive advantage.

That introduction makes a lot more sense leading into this piece from Marc to Market:

Overview: Russia is thought to be behind the cyber-attack on Ukraine at the end of last week, but a military attack over the weekend may be underpinning risk appetites today. The dollar's pre-weekend gains are being pared slightly. Led by the Canadian dollar and Norwegian krone, the greenback is lower against most major currencies, with the yen being the notable exception, which is off about 0.2%. China cut its one-year medium-term lending facility rate by 10 bp to 2.85%, but the yuan edged higher. North Korea conducted another missile test, the fourth of the year. Most equity markets but South Korea and Hong Kong advanced in the region. The South Korean won and the Russian rouble are leading the losers among emerging market currencies. The Thai baht and central European currencies are firmer. The JP Morgan Emerging Market Currency Index has edged lower. It has not risen since the middle of last week. Europe's Stoxx 600 is up about 0.55% after sliding 1% before the weekend. It is snapping a three-day drop. European 10-year benchmark yields are up around 2 bp. The Antipodean yields played catch-up to the US 10-year yield as it rose eight basis points before the weekend to around 1.785%. Gold is firm, inside last Friday's range. March WTI is hovering around $83.30 and is little changed after advancing 2% before the weekend and 6.2% last week. Natgas in the US has steadied around $4.30 after falling around 12.3% over the past two sessions. Europe's benchmark is little changed after easing by less than 0.7% last week. The re-opening of Brazilian mines after the floods may be weighing on iron ore prices, which are off for a third session. Copper also begins the new week extending it weakness for a third session as well.

Asia Pacific
In a mixed performance in December, the Chinese economy expanded by 1.6% quarter-over-quarter in Q4. The median forecast in the Bloomberg survey expected 1.2% growth after practically stagnating in Q3 (0.2%). Last year, the world's second-largest economy expanded by 8.1%. The official target was "over 6%." Property investment was weaker than expected (4.4% year-over-year), while fixed asset investment slowed a touch less than expected (4.9% from 5.2%). Industrial production picked up to 4.3% year-over-year from 3.8% in November. Retail sales disappointed. It rose 1.7% year-over-year in December, down from 3.9% in November and less than half what economists expected. The surveyed unemployment rate unexpectedly edged higher to 5.1% from 5.0%.

The PBOC allowed the one-year medium-term lending facility rate to ease by 10 bp to 2.85%. It is the first reduction since April 2020. As the Lunar New Year holiday approaches, the PBOC has become more generous with its liquidity provisions. It lowered the seven-day reverse repo rate to 2.1% from 2.2%. Chinese shares rose after the rate cut, which most economists did not give much of a chance for, and the CSI 300 rose by about 0.85% to pre-coup the pre-weekend loss. The PBOC's efforts to put a floor under the economy may not be complete, and many expected another cut in reserve requirements. Separately, note that the Chinese demographic picture appeared to deteriorate with 10.62 mln births last year, down from 12 mln in 2020. However, deaths totaled 10.1 mln, allowing China to forestall the reduction of its population, which rose by 480k to 1.41 bln.... 

....MUCH MORE

The yuan is currently at 6.3478 after getting as strong as 6.3438 earlier on January 17.