China: Sticking to its apparent soft USD peg? - Rabobank

Michael Every, Head of Financial Markets Research at Rabobank, suggests that it will be interesting to see if China is really willing to see a shift back to a broad appreciation on a trade-weighted basis by sticking to its apparent soft USD peg.

Key Quotes

“The timing couldn’t be much worse if so. The economic uptick seen in Q1 already appears to be fading based on April data; the stock market is stuck in the doldrums, partly due to the fact that there is an increasingly lunatic housing bubble underway again; and worst of all, the corporate bond market is showing signs of stress.

So far in May Chinese corporates have issued CNY383bn (USD58.5bn) of new notes onshore, 11% down from the same period in April and 57% down from March, as new issues are increasingly pulled on lack of market appetite. Given much of this issuance is being used to roll over existing debts this is concerning, especially as linked stress indicators such as payment delays are already high and rising. (Indeed, it smacks of a ‘Minsky-Pinsk’ moment.)

And at the same time, the US has just imposed tariffs of up to 522% on China’s exports of cold-rolled flat steel. Admittedly the US market is only a small share of total steel shipments (<2%), but symbolically it shows that the ‘export your way out’ option is getting harder.”