CNY: Stabilization already working – Commerzbank

This morning's Caixin PMI for the manufacturing sector surprised on the upside, pointing to a slight expansion of economic output at 50.3, after coming in at 49.3 last month. This joins the ranks of data from recent weeks that already point to a stabilisation of the Chinese economy in September, Commerzbank’s FX analyst Volkmar Baur notes.

US election to be a more decisive item on the agenda

“At first glance, this seems surprising, given that the political leadership was only discussing an additional fiscal package at the end of September. However, if we look at the budget and bond issuance data, it is clear that much stronger support for the economy had already begun in September. While budget spending was down year-on-year until August, September saw a 12 per cent increase in spending compared to September last year. In terms of bonds, preparations for this higher spending began as early as August. Here, too, it can be seen that the pace of issuance until July was significantly lower than last year, but has increased rapidly in the last two months.”

“In fact, it increased so sharply that RMB 3.6 trillion of so-called special local government bonds had already been issued by the end of September. At the beginning of the year, the limit for new issues of these bonds was set at RMB 3.9 trillion. This means that an increase in this limit – as is to be decided in the coming week – is urgently needed, otherwise local governments risk running out of money in the last three months of the year.”

“On the other hand, we should not expect too much from next week's stimulus package. At least some of the money was already used in September. But all this will probably not interest the RMB much next week anyway, because the US election is likely to be a more decisive item on the agenda, at least in the short term.”