Silver as an investment

Yuan Strengthens Most Since 2010 As China Manufacturing Spikes To 17-Month Highs AND Tumbles To 7-Month Lows

In a miracle of modern goal-seeking, China's Manufacturing PMI clung to within an inch of 'stable' 50 level for the 20th month (actually missing expectations of 50.0, printing 49.9) But while manufacturing is its lowest since Feb, the non-manufacturing PMI jumped to 53.9 – its highest since Dec 15. Even better, just 45 monutes after this data, Caixin released their manufacturing PMI data which smahed expectations, surging to 50.6 – its highest since Feb 2015. Following the notable USD weakness on Friday (thanks to BoJ disappointment), and the apparent recovery of the Chinese economy (just need another trillion or two of credit to keep the dream alive), PBOC strengthened the Yuan fix by 0.35% – the most since mid-June… extending the 9-day gain to the most since Sept 2010.

Manufacturing slipped to a 5-month low…

 

Services hits 7-month (2016) highs…

 

But Caixin Manufacturing (weighted more towards smaller-caps rather than official PMI's weighting towards SOEs) surged to 19 month highs… thanks to the quickest rise in outstanding business since March 2011.

 

Commenting on the China General Manufacturing PMI data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:

“The Caixin China General Manufacturing PMI came in at 50.6 for July, up significantly by 2.0 points from the reading for June, marking the first expansion since February 2015. The sub-indexes of output, new orders and inventory all surged past the neutral 50-point level that separates growth from decline. This indicates that the Chinese economy has begun to show signs of stabilizing due to the gradual implementation of proactive fiscal policy. But the pressure on economic growth remains, and supportive fiscal and monetary policies must be continued.”

Evercore ISI notes the following a China's most crucial recent developments… 

  • “Severe challenges” in the China economy says Beijing, worse than “persistent downward pressure” – their characterization of the last several months. 
  • Two components to this change.  One, managing expectations down. Two, showing the upcoming G20 (Sep 4-5) attendees that the officials are on the case. 
  • Conflicting Beijing comments.  Saying ‘foundation of stable economic development not solid’ – bad.   Then saying the ‘long-term positive trend in fundamentals has not changed’ – good.   
  • China budget deficit now 4.2% of GDP, vs. 2.2% in worst of 2008-09 global crisis amid a big stimulus program.  More stimulus coming.   
  • CBRC (banking authority) tightening regulations to contain growing risks from sketchy practices in the ‘Wealth Mgmt Products’ arena.  NPL fears also.   
  • Media control even tighter by Beijing.  All original ‘current affairs news’ is now banned by internet portals.  Managing what people see – not the path of modern market economies.    
  • Yuan strengthened this last week, mostly on Friday.  Think of this as more USD weakness than Yuan strength.

And that Yuan strength continues as PBOC fixes the currency stronger by the most since mid June…

  • *CHINA STRENGTHENS YUAN FIXING BY 0.35%, MOST SINCE JUNE 23

 

This is the 8th Yuan strengthening in 9 days… the biggest strengthening since Sept 2010…

 

Is this the post G-20 agreement? Fed promises not rose rates, China allows Yuan to rise.. world remains stable into the election to try to ensure HRC wins?

 

Charts: Bloomberg