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China's Market News: Chinese Investors Move to Hedge Yuan Risk

China's Market News: Chinese Investors Move to Hedge Yuan Risk

2016-11-02 17:32:00
Renee Mu, Currency Analyst
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This daily digest focuses on Yuan rates, major Chinese economic data, market sentiment, new developments in China’s foreign exchange policies, changes in financial market regulations, as well as market news typically available only in Chinese-language sources.

- The PBOC’s futures and forwards position reveals concerns of market participants on Yuan rates.

- China keeps the domestic gasoline and oil prices unchanged on Wednesday due to insufficient moves in global oil prices.

- Peer-to-Peer online lending dropped in October, amid tightened regulations.

To receive reports from this analyst,sign up for Renee Mu’ distribution list.

Yuan Rates

- The PBOC strengthened the Yuan by +172 pips or +0.254% against the U.S. Dollar to 6.7562 on Wednesday. Following the guidance, a Doji candle was formed for the USD/CNH pair in the 15-minute chart, indicating traders’ indecisiveness. In the late portion of the Asian session, the offshore Yuan rose against the Dollar, with the USD/CNH dipping 6.7631, the strongest level for the Yuan in over a week.

In a longer-term, there are still considerable speculations on Yuan’s weakness, even from home. According to the PBOC, the Central Bank held a net short position of $45.3 billion in foreign currencies against the Yuan in futures and forwards in September from a net short position of $28.9 billion in the month prior. This is the first time that the PBOC’s position in futures and forwards is changed since it began to report this kind of data in March. The PBOC provides foreign currency liquidity to Chinese companies through commercial banks. Its increased net short position in futures and forwards indicates that Chinese companies have raised hedging amid speculations on a weaker Yuan.

China's Market News: Chinese Investors Move to Hedge Yuan Risk

Prepared by Renee Mu.

Also, if the Yuan continues to drop against the U.S. Dollar, Chinese companies are more likely to execute their contracts rather than offsetting them. Then, the Central Bank will need to further burn foreign reserves in the effort to delivery Dollars and other foreign currencies. In September, China’s foreign reserves dropped -$18 billion to $3.166 trillion, the lowest level since May 2011.

Market News

China Finance Information: a finance online media administrated by Xinhua Agency.

- China kept the domestic gasoline and diesel prices unchanged, according to a statement announced by National Development and Reform Commission (NDRC) on November 2nd. China’s oil prices are not free floating. Instead, the NDRC guided oil prices every ten weekdays in accordance to moves in global oil prices. If the change in oil prices over one adjustment period is less than 50 Yuan/ton, the regulator will hold the domestic oil prices steady.

Early this year, the NDRC kept the domestic oil prices unchanged for a different reason - to maintain prices at a reasonable level: when global oil prices fall below $40/barrel, no change will be applied to domestic oil prices.

Date

Gasoline Prices (Yuan/ton)

Diesel Prices (Yuan/ton)

November 2

No change due to insufficient moves (less than 50 yuan/ton)

October 19

+355

+340

September 30

No change due to insufficient moves (less than 50 yuan/ton)

September 18

-155

-150

September 1

+205

+200

August 18

+175

+170

August 4

-220

-215

July 21

-155

-150

July 7

No change due to insufficient moves (less than 50 yuan/ton)

June 23

No change due to insufficient moves (less than 50 yuan/ton)

June 8

+110

+110

May 25

+210

+200

May 11

+120

+115

April 26

+165

+160

April 12

No change due to restrictions on floor prices

March 28

March 14

February 29

February 15

January 27

January 13

-140

-135

Prepared by Renee Mu.

The following chart shows NDRC’s adjustments in accordance to moves in WTI Crude Oil. Green lines represent increases; read lines are decreases; grey lines mean no change.

USOIL 1-Day vs. NDRC Moves

China's Market News: Chinese Investors Move to Hedge Yuan Risk

Prepared by Renee Mu.

Hexun News: Chinese leading online media of financial news.

- China’s Peer-to-Peer (P2P) online lending dropped -3.28% to 188.56 billion Yuan in October from the previous month amid strengthened regulations; the average return of P2P loans fell 15 basis points to 9.68% on a monthly basis. This indicates that under the regulator’s guidance, P2P lending is transiting from unhealthy expansion driven by high yields to health competition among qualified participants.

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