China Takes to the Financial Headlines this Week

By FX Empire Analyst - Barry Norman
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After a generally sleepy week for Asia, things heat up a bit next week by way of potential global market ramifications.  Over the weekend, reports showed that China's home prices rose 0.1 percent in July from June, a second month of modest uptick that raises the risk Beijing may seek to bolster a two-year campaign to curb housing inflation but which also weighs on the wider economy.

Home prices fell 1.5 percent year-on-year, according to Reuters calculations based on data from the National Bureau of Statistics, but the trend of month-on-month falls seen in October through to May has been reversed in June and July.

A new trend does appear to be materializing as home prices continue on an upward trajectory after the Chinese government began to loosen certain levers to address concerns around a slowing economy.

The shift follows a slew of pro-growth measures from Beijing since autumn 2011, as well as unauthorized policy relaxation by more than 30 local governments that have revived housing demand.

One of the major upcoming risks is that there is the ever-present risk of rate cuts or cuts to the required reserve ratio in China given the lack of a formal schedule for such moves. 

China’s Premiere Wen said this week that “growing room for monetary policy operations” gives his government room to step on the stimulus accelerator. Chinese funding markets agree, but they are not pricing interest rate cuts in the next two months implying a bet that the first stimulus measures will be an easing of reserve ratio requirements — which Chinese officials tend to announce over weekends. 

Second, how fast is the Chinese economy growing?

Manufacturing PMIs have been shooting off mixed signals, with the state’s official PMI indicating oscillation between growth and contraction while a prominent private sector manufacturing PMI has shown the manufacturing sector receding during the balance of the year so far. We’ll get a look at the latter on Wednesday in what is probably the main data release on the Asian economic ledger. Lastly CPI data from Hong Kong (often looked at as an alternate source for information on price growth in major Chinese cities) will be released Monday night. 

With China being the 3rd largest economy, behind the US and the Eurozone, their growth, policies and actions will affect global markets. Also regional markets such as Australia, Japan and New Zealand depend on their trade with China.

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