Increasing money inflow continues to appreciate the Yuan in 2013, cracking down exports dramatically in an actual scenario basis instead of official figures.
To view figure 3, please visit the following link:
Lending plays a key role in both the real economy and capital markets, such as equities. New Yuan Loans in May dropped to USD667.4B from USD792.9B, and the downward trend could continue due to:
1. Overdue loans rising 46% last year, according to a statement from People's Bank of China (PBOC), adding signs of strain in the Chinese banking system.
To view figure 4, please visit the following link:
2. Higher housing prices limit needs for loans from many households, with the hope on Xi's "China Dream" to possibly squeeze the housing bubble.
To view figure 5, please visit the following link:
However, A-share properties stocks tumbled in May.
To view figure 6, please visit the following link:
Better-than-expected jobs expansion in May lifts possibilities on sooner regime change by Federal Reserve (Fed)
Generally, the Dollar played defensively last week, kicked-off by the sharp falling U.S. Institute for Supply Management (ISM) Manufacturing Purchasing Managers' Index (PMI), followed by an unexpected "neutral" message from Mario Draghi. However, the better-than-expected U.S. Non-Farm Payroll (NFP) curbed the Dollar sell-off and the Dollar Index (DXY) elevated from level 81.00.
To view figure 7, please visit the following link:
Still, the DXY stayed within the ascending channel since May 2011, due to its relatively strong recovery compared to the rest of the major economies.
To view figure 8, please visit the following link:
Recently, there are some corrections set off by a set of warnings from Federal Open Market Committee (FOMC) members that a slowing (tapering) of its large-scale asset purchases will come sooner or later. There is now emphasis on "sooner" due to the upbeat NFP.
Based on price reaction on the tapering, the fixed-income market is the most sensitive, while equities are the least.
To view figure 9, please visit the following link:
The easy money regime should last for a while, at least before year-end, or with the high uncertainty of its exact exit timing. However, it is crucial to observe current "price action" in different markets serving as a "prophet."
There is one rule here: what benefitted the past 4-year easy money regime might now start to be a nightmare. "Carries" are typical examples.
Since the U.S. started "green shoots" in 2009 by the Fed's aggressive stimulus, the Aussie and Kiwi became the best performers. This was not the case with European currencies.
To view figure 10, please visit the following link:
Having that said, European currencies should correlate less with the Fed tapering as well, compared to "Growth/Stimulus" related currencies, such as the AUD, NZD and CAD.
To view figure 11, please visit the following link:
Harder hit on Aussie Dollar might send AUDUSD toward 0.90
The Aussie took another hit by the full set of weaker-than-expected data from China over the last weekend, after the disappointing 1Q GDP growth in Australia announced few days ago. It's not the end of the story since its trade surplus was much lower in April at AUD 28m, compared to the previous AUD 56m.
Hence, the current situation will not be very favorable for the Australian Dollar in the short term. We simply do not find any catalyst to buy it when the Reserve Bank of Australia (RBA) showed the gesture of "keeping accommodative."
We prefer to sell the AUDUSD if the pair "technically" rebounds to its closing price last week (around 0.95). The next support stands around 0.94. If this level is penetrated, the AUDUSD could tumble toward 0.90 on a strong selling-off momentum.
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