Oct. 22, 2016 (Commerzbank AG) – Renminbi – Could it crash again?
Recently, the USD-CNY exchange rate has broken through the important 6.70 mark. Could the renminbi crash again? We demonstrate that the CNY is still a managed currency. The policy is to minimise fluctuations against the CFETS currency basket. If the US dollar tends to gain versus all currencies as of late, the PBoC cannot at the same time have its currency appreciate against the dollar. In the light of this finding, recent CNY weakness relative to the US dollar was conformist.
- USA far exceeds Maastricht deficit ceiling Uncle Sam has loosened his belt. In the just-ended fiscal year 2016, the deficit rose by nearly $150bn. The consolidation course has thus ended even before any change of government in January and the possible realisation of expensive election promises which may follow.
Outlook for the week of 24 October to 28 October 2016
- Economic data: The US economy has revived in Q3 and we look for GDP to grow at an annualised rate of 2.4%. In the euro zone, sentiment indicators will show that the economy continues growing at a moderate pace.
- Bond market: Although the ECB’s recent inactivity should give way to far-reaching measures in December, the growing debate about reflation in the US and UK is extending to the euro rates market and underscores the tendency towards a steeper Bund curve.
- FX market: No fresh impetus should be expected from the EUR front next week. The currency market is focusing on the economic situation in the USA as well as interest rate decisions in Norway and Sweden.
- Equity market: The Q3 reporting season is gradually gaining momentum. So far, earnings have surprised positively overall, despite individual exceptions such as GEA. An ongoing stabilisation in earnings expectations should continue to support German equities.
- Commodity market: The oil price rise since end-September is to a large extent speculatively driven. In response to the higher oil prices, the number of oil rigs has increased in the US. Oil prices therefore have correction potential.