China: CNY to maintain the upward momentum – TDS

China's September data releases were positive, revealing yet more signs of strengthening recovery. Economists at TD Securities expect the trend to continue, with China being one of the only major economies likely to record positive growth this year. CNY, equities, and risk assets, in general, should like what they see in the data while Chinese bonds, however, will likely remain on the back foot.

Key quotes

“China's Sep data dump revealed more evidence of strengthening recovery. Retail sales rose 3.3% YoY (mkt 1.6%), industrial output was up 6.9% YoY, (TD 6.0%. mkt 5.8%), the unemployment rate fell to 5.4% (mkt 5.5%), fixed assets were up 0.8% YTD YoY (mkt 0.9%) and property investment was up 5.6% YTD YoY (mkt 5.2%). Q3 GDP disappointed, coming in at 2.7% SA QoQ (mkt 3.3%), 4.9% YoY (TD 5.6%, mkt 5.5%) but this is backward looking and growth has now edged back into positive territory for the year at 0.7% YTD YoY.”

“There are still risks ahead such as renewed external weakness and of course renewed virus cases. Indeed, lockdowns in many major economies may weaken demand for Chinese goods. Also some high frequency Chinese data are beginning to lose momentum, suggesting that the pace of recovery may slow. Nonetheless, China's growth engine looks like its beginning to fire on all cylinders. This will likely keep the CNY and Chinese equities supported, while bonds are likely to continue to face pressure.”

“We think that firming data will reduce any desire for renewed CNY weakness. In fact, the data will likely help to continue to fuel CNY appreciation pressures, with the CNY vs. USD rising to its highest since March 2019. At most, People’s Bank of China will likely slow the pace of appreciation rather than stem.”