Worried about the Exit of Capital from China?

For the first time sine the Asian crisis, China’s FX reserves fell in the last quarter of 2011. A $20.6b slip may only be a blip in China’s hoard of $3.18t in reserves. However, a reduction of this size has not been seen in nearly 14-years. Does it signal a change in sentiment in the Chinese economy? A fraction of the decline is due in part to the EUR’s depreciation, coupled with a smaller trade surplus between the regions. However, the most significant cause of the decline can be attributed to the flow of capital out of China. The Shanghai composite index fell -21% last year and as long as property prices keep falling, hot money has enough of a reason to want to exit!

Below are some other highlights of the week:

ASIA

• AUD: Retail Sales stalled in November against consensus for a modest +0.4%, m/m, rise. Analysts believe further weakness in the coming months will have the market pricing in further RBA easing. Futures market is already pricing in a-25bp cut at the February meeting.
• CNY: China reported ‘new’ Yuan loans totaling +CNY640b in December, up +15.8%, y/y, and above the consensus estimate of +CNY575b.
• NZD: New Zealand trade data implied a small surplus of +NZD30m seasonally adjusted in November, with imports and exports growth broadly in line with consensus. Analysts fear for weaker trading partners’ growth. Softer demand may lead to further deterioration in NZ’s trade balance over the coming months.
• TWD: Trade surplus fell to $+2.3b in December from +$3.2b in November. Slowing exports caused the trade balance to deteriorate more than expected i.e Exports to Germany fell -16%, y/y (Third consecutive monthly decline).
• CNY: China’s export growth fell to +13.4% in December from +13.8% in November, while imports were on the weak side, rising by only +11.8%, y/y, compared with +18% consensus and +22.1% in November. This suggests softer domestic investment demand and weaker commodity prices. The trade balance recorded a +$16.5b surplus in December.
• AUD: Australia building approvals rose +8.4% in November (after two months of over -10% declines). Perhaps the domestic housing market is benefiting from the RBA rate cuts.
• PHP: Exports fell -19.4%, y/y, in November. Weak exports and tame inflation supports market expectations for a – 25bp cut from the Cbank in March.
• MYR: IP rose +1.8%, y/y, in November, weaker than the +3.5% consensus expectations.
• PBoC: Comments from their head of research bureau suggests “inflation pressures are unlikely to ease quickly”-perhaps no monetary easing anytime soon.
• MYR: Export growth slowed to +8%, y/y, in November from +15.4% the previous month. The market anticipates the central bank to keep MYR broadly in line with other regional currencies amid the euro crisis.
• CNY: Inflation slowed to +4.1%, y/y, in December from +4.2%. The Chinese government have warned against expectations for inflation to ease quickly and reiterated that stabilizing prices remained important on the government’s agenda. The market anticipates the PBoC to cut the reserve ratio in coming months to accommodate growth.
• JPY: Japan’s current account surplus fell to +JPY138b in November, well short of the consensus estimate of +JPY248b. Note surplus erosion can help ease some pressures on the currency, compression of G10 “yield differentials and fragile risk appetite should keep the yen well supported in the near term”.
• INR: India’s industrial production surprised on the upside, rising +5.9%, y/y, against a modest +2.1% growth.
• IDR: Bank Indonesia (BI) left policy rates unchanged at +6%, most likely because of a rupiah. With inflation under pressure to fall, market is pricing in a -25bp ease at the next meeting.
• KWN: The BoK left policy rates unchanged at +3.25% as expected, citing larger downside risks to global growth and subdued domestic demand. The market expects policy makers will ease in 2012, but only by -25bps given the lack of inflation pressure.

AMERICAS Week in FX

EUROPE

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