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China: September foreign reserves likely to show further deterioration - ING

FXStreet (Delhi) – Tim Condon, Chief Economist at ING, suggests that China’s September foreign exchange reserves data is due tomorrow and the consensus forecast is $3.5tr, which implies a $57bn decline in September and a year-to-date decline of $343bn.

Key Quotes

“We think the consensus forecast for foreign reserves, which implies reduced hot money outflows, would be positive for financial markets. The $93.9bn fall in reserves in August was the biggest monthly fall on record.”

“The PBOC attributed the large fall in reserves in August to exchange market intervention, valuation changes and entrusted FX loans through banks, which we assume were CDB and Chexim lending following their July recapitalizations. The PBOC has released data on its August forward market operations and the surprising thing was there were none.”

“We agree with the consensus view that forward exchange market operations were conducted by national team banks. The August reserve decline was a record and raised hard-landing worries, triggering financial market contagion.”

“The modestly better PMIs released last week lessened worries; the China factor hasn’t interrupted the risk-on re-pricing in financial markets triggered by the September US jobs report. We think the consensus forecast for foreign reserves, which implies reduced hot money outflows, would be similarly positive.”

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