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PBOC: Plenty of scope to ease further - BBH

FXStreet (Delhi) – Research Team at BBH, suggest that the capital outflows that do exist from China, could result in yuan’s lag further behind the dollar in the next leg up and there is still plenty of scope for the PBOC to ease further, including the reserve requirements, which were a macro-prudential tool to siphon-off some of the hot money that had flowed into China previously.

Key Quotes

“Given the developments over the past couple of months, investors are particularly sensitive to developments in China. In the week ahead the official PMIs will be reported. If the monetary and fiscal stimulus that China has deployed can be expected to help the large state-owned sector, than the official PMI may begin to stabilize before the Caixin measure, which tends to give more weight to smaller, private sector firms.”

“Overnight, the focus was on news that Chinese industrial profits fell 8.8%, the most since 2011. Still, the Shanghai Composite managed to close with a small gain overnight. The index has spent the past four weeks chopping along the trough after falling by around 45% from the mid-June high. As it has moved broadly sideways, its impact on other markets appears to have lessened. However, a break of the lower end of the range, around 2980, could have a new knock-on effect.”

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