Chinese Yuan Rebounds After Disappointing Data, Positive 2020 Outlook

The Chinese yuan is rebounding against multiple currency pairs on Tuesday, following an onslaught of disappointing economic data. The biggest driver of the yuan’s gains is President Donald Trump’s upcoming speech at the Economic Club of New York that is expected to announce delays to tariffs on automobiles, as well as hints on the current state of US-China trade negotiations.

Global financial markets were disappointed by China’s producer price index (PPI) as it tumbled 1.6% in October, down from the 1.2% contraction in September. This was the steepest drop since July 2016, impacted by the cost of production, raw materials, processing, and extraction coming down.
Coming in higher than expected, the annual inflation rate surged to 3.8% in October, up from only 3% in the previous month. While it did beat the median estimate of 3.3%, the real story was that this was the highest inflation reading in nearly eight years.
The nation’s credit lending continues to be a concerning trend for policymakers, despite accommodation by the federal government. According to the People’s Bank of China (PBOC), new bank loans dipped to their lowest levels in about two years. The central bank also rose 12.4% year-on-year in October, a decrease of 0.1% from the previous month. Investors are paying even greater attention to this statistic since it measures business activity – small and medium.
Auto sales recorded their 16th consecutive decline in October, falling 4% from the same time a year ago. This was primarily driven by the 45.6% plunge in new energy cars, or electric vehicles.
Despite the lackluster numbers, a new Credit Suisse survey of companies and consumers shows there is increasing optimism across the country. The study found that consumers anticipate business and financial conditions to improve next year, while smaller firms say they are getting greater financial support from lenders than they did last year.
This is a pleasant surprise, considering China just reported its slowest gross domestic product (GDP) growth rate of 6% in the third quarter in 30 years.
The USD/CNY currency pair slid 0.04% to 7.0079, from an opening of 7.0104, at 15:40 GMT on Tuesday. The EUR/CNY tumbled 0.23% to 7.7189, from an opening of 7.7342.

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