US rates drive RMB Yuan South to 10 yrs Lows vs. USD
$ USDCNY (onshore): -0.29% to 6.868
- $ USDCNH (offshore): -0.09% to 6.879
- The Golden Week starts on October 1st
With little prospect of restarting trade negotiations between the US and China, we expect an escalation of tensions that will see higher US rates on all Chinese imports, pushing the yuan to the weakest against the dollar in more than a decade.
And JPMorgan has adopted a new baseline based on an American-Chinese endgame with 25% US rates on all Chinese goods in Y 2019.
Although the growth expectations for both the US and China are not very affected, thanks in part to Chinese stimulus measures, "a weaker RMB Yuan becomes part of the new balance", JPM wrote in a note to customers.
The People & # 39; s Bank of China (PBoC) is likely to pursue a looser monetary policy to support growth in light of the trade threats, and is unlikely to intervene much to mitigate the resulting downward pressure on the RMB Yuan. to go, according to JPM's analysis.
The bank now expects the RMB Yuan to fall to 7.01 per USD by the end of December and 7.19 in September 2019, after projecting earlier at 7.02 in 12 months.
The Chinese currency closed at 6,868 per USD in the onshore trade last week.
The median forecast of analysts surveyed is that the currency will be strengthened to 6.70 by the end of next year.
"Bringing Chinese monetary policy will ensure that the USD will continue to generate a higher return on the Renminbi (RMB Yuan) for the remainder of the cycle", wrote the JPMorgan strategists.
The yield gap will benefit the dollar thanks to further tightening of the Fed, in the prospects of the team.
A cheaper RMB Yuan will pull the currencies of emerging Asian countries, with write-downs that exceed the forward prices for all but the Indian rupee and the Indonesian rupiah, the bank said.
As far as cross-asset investment strategy is concerned, the Asian currencies are "decreasing their potential constraints for regional equities," JPM analysts wrote. However, the prices of base metals should still increase in Y 2019 due to lower inventories.
The new baseline of the trade war also raises questions in the medium term for the world's most expensive stock market (US) and one of the cheapest (China), "they wrote, US earnings expectations are under pressure due to higher costs. tariff increases. "Full rates can lead to a 1st loss of profits from The Trump Era."
For Chinese equities, which have entered a bear market, even if US benchmarks have risen to record highs, expectations depend on the success of the country in boosting consumption and sectors such as technology and e-commerce, say JPMorgan strategists. If that rotation does not continue, "Chinese assets can keep a risk premium for some time," they said
A great week.
Paul A. Ebeling, polymath, excels in various fields of knowledge. Pattern recognition analyst in stocks, commodities and foreign currencies and author of "The Red Roadmaster's Technical Report" about the US major market indices ™, a highly valued, weekly financial market letter, he is also a philosopher and provides insights into a wide range from subjects to a result of more than 250,000 cohorts. An international audience of opinion makers, business leaders and international organizations acknowledges Ebeling as an expert.