Recap Of The Week’s Top Stories…
Chinese Yuan Pares Back Against US Dollar, Markets Pummeled In
Session
The Chinese yuan pulled back significantly against the US
dollar, while making further ground against the Euro and British pound as
markets in Asia were hammered following losses in major US markets the day
before. In New York, the yuan traded as high as 7.5880 against the US
dollar. Notably Singapore’s Straits Times Index declined by an impressive
3.35 percent, second to Taiwan’s markets which plummeted more than 3.5 percent
on the day. Hong Kong wasn’t left out as the benchmark Hang Seng Index
dropped by 2.87 percent, shedding a whopping 632 points in the overnight
session. Surprisingly, losses were minimized in the Shanghai exchange as
the index lost a mere 16.68 points to close down 0.34 percent. Market
sentiment was supported by the earnings release of Citic Securities Co. which
saw first half year profits jump more than five times as surging speculation in
China had boosted trading fees for the company. Net income rose 4.2
billion yuan from a mere 775.8 million in the year ago period. The results
have the company pitted to take over as Asia’s biggest brokerage, a title held
by Nomura Holdings inc. (August 15th)
Industrial Output In China Advances By 18 Percent
Output
in the world’s fastest growing economy advanced at a healthy 18 percent pace for
the month of July, coinciding with previous growth figures presented earlier in
the quarter. However, the report, although optimistic, was less than
consensus estimates of 19.4 percent and shows signs of slowing down. For
the first time in three months, it seems that the recent repeal of export
rebates may be cutting into the productivity of the overall sector.
Manufacturers and major exporters now no longer have the luxury of what some
deemed a governmental subsidy in boosting output. The findings are a
welcomed release as government officials have made more than enough attempts at
cooling the overheated economy. Now, it seems that newly implemented
policies may be working their way through the economy, albeit at a slower pace
than some would want.
China Fixed Asset Investment Advances 26.6
Percent
Spending on factories and equipment rose by an impressive
26.6 percent so far this year as businesses continued to meet growing demand
domestically and abroad. Fixed asset investment in the world’s fastest
growing economy surged ahead to $747 billion, close to the 26.7 percent rate
last year according to the statistics bureau. In detail, for the first
seven months of the year, new investment projects were in the view of 132,099,
adding 17,168 to last year’s figure. Overall good for the economy, the
surge in investment has, however, built up money supply inflation. As a
result, speculation continues to grow over the possibility of further rate
increases by the People’s Bank of China as policy makers attempt to rein in
inflationary pressures supported by mounting growth. For the record the
attempt would be the fourth time this year that policy makers will have
tightened monetary policy aside from other monetary policy tools at the central
bank’s disposal.
China Retail Sales Rises To Historic Pace
Growing at the
fastest pace since 2004, China’s retail sales survey jumped 16.4 percent in the
month of July. Spending in the economy grew at a 699.8 billion yuan pace
compared to a year earlier, according to the National Bureau of Statistics, and
lends to speculation of mounting inflationary pressures in the world’s fastest
growing economy. Attributed to the rise in spending is the rapid growth in
incomes, to the tune of 14 percent, coupled with stock market gains offering
individuals with more disposable income. Subsequently, consumer confidence
in the economy is expected to rise to the highest level in almost 4 years for
the second half of the year with robust growth continuing to support spending on
the consumer level.
US Requests Ruling On Chinese Piracy
In an aggressive
move, the Bush administration requested that the WTO rule on a current complaint
against China over the topic of pirated movies, music, software and books.
More specifically, the US Trade Representative’s office took formal steps in
asking arbiters to deem current Chinese laws too laxed in safeguarding current
copyrights of American products. Although rightfully placed, the request
will likely fall to the wayside, buying officials more time as Chinese leaders
will be able to block the formal request. Subsequently, this would
force the US to make an additional request for the establishment of a panel in
September. Typically, rulings after that will take up to a year or more to
finalize.
-Richard Lee, Currency Strategist