Chinese Yuan Remains at the Weakest Level in the Last 8 years

During the Asian session today, there were a collection of economic releases from China, which had a notable impact on the markets. This is aside from the impact of the historical decision by OPEC and Non-OPEC members to cut the oil production for the first time since 2007, leading to a sharp rally in Crude Oil prices by more than 8% in few hours. Brent is trading above $52 while WTI Crude is now at $50.

However, in today’s article we will take a look at the Chinese data, which were released after the OPEC deal and explained its impact on the markets, what does it mean for China, the global economy, and CNH.

Definitions:

Manufacturing PMI: Level of a diffusion index based on surveyed purchasing managers in the manufacturing industry. Above 50.0 indicates industry expansion, below indicates contraction. Tends to have more impact when it’s released ahead of the HSBC Manufacturing PMI because the reports are tightly correlated. Chinese data can have a broad impact on the currency markets due to China’s influence on the global economy and investor sentiment. Released monthly, on the first day after the month ends.

Non-Manufacturing PMI: Level of a diffusion index based on surveyed purchasing managers in the services industry. Survey of about 1200 purchasing managers which asks respondents to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories.

Caixin Manufacturing PMI: It’s the same as the Manufacturing PMI. However, this index survey of about 430 purchasing managers which asks respondents to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories.

Why This Is Important?

Manufacturing & Non-Manufacturing PM’s: It’s a leading indicator of economic health – businesses react quickly to market conditions, and their purchasing managers hold perhaps the most current and relevant insight into the company’s view of the economy.

Survey of 3000 purchasing managers which asks respondents to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories.

An expansion in Manufacturing and Non-Manufacturing sectors in China usually has a notable impact on the markets, as it indicates higher global demand.

In return, higher Chinese exports, and global growth. On the other hand, a shrinking in those figures usually have the biggest impact on the markets, which increases the fears over the Chinese economy, which will likely to slip in to the global economy as well.

Outcomes

Indicators	Actual	Forecast	Prior
Manufacturing PMI	51.7	51.0	51.2
Non-Manufacturing PMI	54.7	54.0	54.0
Caixin Manufacturing PMI	50.9	50.9	51.2

Today’s outcomes from China is seen encouraging, the Manufacturing PMI grew for the fourth month in a row, posting the highest reading since July of 2014. Moreover, the Non-Manufacturing PMI advanced for the third month in a row, rising to the highest level since June of 2014. These figures had a positive impact on all Asian equities, while metals took a hit. Yet, such figures should decrease the estimates for further stimulus measures by the PBoC anytime soon.

USDCNH Ticked Lower

Following the Chinese data, the USDCNH ticked lower again back to 6.89. However, the Chinese yuan remains at the weakest level in the last 8 years. The PBoC is trying to support the nation’s exports by devaluing the Yuan. Moreover, the devaluation has increased since Donald Trump won the election. For the time being, further devaluation is possible and USDCNH might test 7.0 in the coming weeks.