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China: Real activities of the economy back strong yuan – ING

New sectors continue to drive China’s economic growth as economic fundamentals remain supportive of the CNY appreciation trend, according to Iris Pang, Economist at ING.

Key Quotes

“Of the remaining October activity data industrial production, fixed asset investment and retail sales are due tomorrow (November 14). M2 and new CNY loans data are due anytime today or tomorrow.”

“We forecast steady fixed asset investment (FAI) growth close to September pace (INGF: 7.4% YoY YTD; consensus: 7.3; prior: 7.5). Manufacturing, real estate and infrastructure accounted for 31%, 23% and 22%, respectively of total FAI in the year through September. The negative YoY growth of mining can be attributed to deleveraging reforms in the sector. Infrastructure investment is filling the gap with 20% YoY growth. Strong infrastructure investment growth is likely to have stressed public finances, putting the local government debt onto our radar.”

“We expect only slight slowdown in retail sales in October (INGF: 10.1% YoY; consensus: 10.4%; prior: 10.3%) due to slowdown in car sales growth. Catering would continue to grow steadily at c.10% YoY, representing that middle-class has spare cash to dine out. Rising petroleum prices would also give some strength to retail sales. The Singles’ Day is likely to provide a big boost to retail sales in November.”

“Industrial production growth is expected to be stable (INGF: 6.6% YoY; consensus: 6.3%; prior: 6.6%). The capacity reduction reform in raw material sectors will continue to weigh on production in the old sectors. Strong growth in high tech production is likely to offset weakness in the old sectors; production of industrial robots, semi-conductors surged by 69.4% YoY YTD and 22.1% YoY YTD respectively in September.”

“Overall, activity in the real economy are running well. We expect 6.7% YoY GDP growth in 4Q, 6.8% for full year 2017. Strong fundamentals could support the CNY on its appreciation path (INGF: USD/CNY 6.50 by the end of 2017).”

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