21 Mar 2014
Asia EM Express: More corporate bond defaults in China expected throughout 2014
FXStreet (Łódź) - Markets continue to worry about China's economic slowdown, which gradually becomes more and more evident. On Thursday reports emerged of a possible default in the steel industry as a producer from Shanxi province failed to meet payments on a 3 billion yuan loan. A bailout might be provided, but as Michael Every from Rabobank suggests “we can expect that 'China default' story to run and run in 2014.”
Meanwhile, there were news yesterday that the China Securities Regulatory Commission approved two applications for new-stock sales submitted by two property developers and was reviewing three other applications, which pushed the Shanghai Property equity index up 3.1%. As Jim Reid from Deutsche Bank comments: This is increasing optimism onshore that the government’s tightening stance on the sector may be coming to an end.”
On Thursday the PBOC set the yuan reference rate at 6.1460 to the dollar, above Wednesday's 6.1351. This weakened the yuan further and, as Ivan Delgado suggests, implies the central bank's “hunt on excessive yuan long speculative positions.”
In Korea, President Park Guen-Hye held a meeting with government officials, business leaders and academics on Thursday to discuss deregulation, which in her opinion is the best way to revitalize the economy in the country without increasing spending.
The policymakers plan to reduce the volume of regulations from 15,269 in 2013 to 14,168 in 2014 and to 13,069 in 2016. According to Young Sun Kwon, Research Analyst at Nomura: “, this increases upside risks to our already-above-consensus 2014 GDP growth forecast of 4.0%.”
Furthermore, “this reduces the risk of political pressure on the Bank of Korea (BOK) to cut rates, as a prolonged period of monetary easing is likely to reduce the private sector's desire for structural reform.”
Economic data
Malaysia is due to publish its inflation numbers for February later today. In January CPI stood at 3.4% and analysts expect in to remain unchanged.
Tim Condon from ING predicts: The balance of economic risks is skewed toward inflation and the Bloomberg analyst forecast is for BNM to hike by 25bp to 3.25% by yearend. Based on its supply-shock character we expect high headline inflation to be transitory and to fall in the second half of
the year. Falling inflation will, we think, persuade BNM to remain on hold.”
Technicals
The yuan continued dropping on Thursday, falling to the intraday level of 6.2334 against the dollar, lowest in over a year.
The daily FXStreet Trend Index for USD/CNY was slightly bullish, with the OB/OS Index extremely overbought. RSI was at 85.2309 at the last close. Daily 2-StDev Volatility Bandwidth was expanding at 317 pips, with ATR (14) expanding at 180 pips. The 1D 200 SMA was at 6.1047 , while the 1D 20 EMA stood at 6.1469.
The Rabobank team of analysts believe that USD/CNY will “see an 'N'-shape pattern ahead – further weakness as some of the recent inflow of hot capital tries to exit and as the PBOC hammers home its 'China carry trade = bad!”'message; then a gradual reversal once the PBOC eases off; but then further weakness into end-year to reinforce the PBOC’s message again, and also to support a slowing Chinese economy.”
Meanwhile, there were news yesterday that the China Securities Regulatory Commission approved two applications for new-stock sales submitted by two property developers and was reviewing three other applications, which pushed the Shanghai Property equity index up 3.1%. As Jim Reid from Deutsche Bank comments: This is increasing optimism onshore that the government’s tightening stance on the sector may be coming to an end.”
On Thursday the PBOC set the yuan reference rate at 6.1460 to the dollar, above Wednesday's 6.1351. This weakened the yuan further and, as Ivan Delgado suggests, implies the central bank's “hunt on excessive yuan long speculative positions.”
In Korea, President Park Guen-Hye held a meeting with government officials, business leaders and academics on Thursday to discuss deregulation, which in her opinion is the best way to revitalize the economy in the country without increasing spending.
The policymakers plan to reduce the volume of regulations from 15,269 in 2013 to 14,168 in 2014 and to 13,069 in 2016. According to Young Sun Kwon, Research Analyst at Nomura: “, this increases upside risks to our already-above-consensus 2014 GDP growth forecast of 4.0%.”
Furthermore, “this reduces the risk of political pressure on the Bank of Korea (BOK) to cut rates, as a prolonged period of monetary easing is likely to reduce the private sector's desire for structural reform.”
Economic data
Malaysia is due to publish its inflation numbers for February later today. In January CPI stood at 3.4% and analysts expect in to remain unchanged.
Tim Condon from ING predicts: The balance of economic risks is skewed toward inflation and the Bloomberg analyst forecast is for BNM to hike by 25bp to 3.25% by yearend. Based on its supply-shock character we expect high headline inflation to be transitory and to fall in the second half of
the year. Falling inflation will, we think, persuade BNM to remain on hold.”
Technicals
The yuan continued dropping on Thursday, falling to the intraday level of 6.2334 against the dollar, lowest in over a year.
The daily FXStreet Trend Index for USD/CNY was slightly bullish, with the OB/OS Index extremely overbought. RSI was at 85.2309 at the last close. Daily 2-StDev Volatility Bandwidth was expanding at 317 pips, with ATR (14) expanding at 180 pips. The 1D 200 SMA was at 6.1047 , while the 1D 20 EMA stood at 6.1469.
The Rabobank team of analysts believe that USD/CNY will “see an 'N'-shape pattern ahead – further weakness as some of the recent inflow of hot capital tries to exit and as the PBOC hammers home its 'China carry trade = bad!”'message; then a gradual reversal once the PBOC eases off; but then further weakness into end-year to reinforce the PBOC’s message again, and also to support a slowing Chinese economy.”