Sample Category Title

Pivot (invalidation): 0.7190

Our preference Short positions below 0.7190 with targets at 0.7145 & 0.7130 in extension.

Alternative scenario Above 0.7190 look for further upside with 0.7210 & 0.7225 as targets.

Comment The RSI advocates for further decline.

PBOC has aggressively increased market liquidity. In the form of reverse repo operations, the central bank announced Wednesday that a total of RMB 570B would be pumped to the market. With RMB 10B of previous reverse repo maturing, the net injection would be RMB 560B. While the central bank noted that the move aims at accommodating taxpayers during the peak tax payment season, the liquidity injection is the highest on record for a single-day. Together with another RMB 700B injection after the RRR cut of -50 bps on January 15 (another one more of the same size on January 25), concerns about the growth slowdown in the world’s second largest economy have inevitably been intensified. While intensifying the stimulus efforts via reverse repo and RRR reduction, PBOC still refrains from cutting interest rates. We believe that policymakers are struggling to avoid entering a monetary easing. Although the Fed is expected to decelerate its rate hike path, it is still expected to have rate hikes this year, which balance sheet reduction remains in progress. A rate cut by PBOC would exacerbate policy divergence, potentially leading to abrupt capital outflow.

PBOC’s Reverse Repo Operations on Jan. 16

Besides monetary stimulus, the government has also pledged to increase fiscal stimulus, including huge tax cut and government spending. However, it could the wishful thinking of the government that fiscal stimulus could boost growth. Consumers are more likely to save than spend during economic slowdown. Meanwhile, issuance of government bonds in order to finance its expenditure could create a crowding-out effect. As the government is competing with corporate in acquiring funding, borrowing cost in general would increase, offsetting the stimulus implemented by the government with the aim of lowering interest rates.

As we are awaiting the 4Q18 GDP growth and other major macroeconomic data for December, all are due next week, the lately released inflation and credit data released have revealed that the country’s economy is not in good shape.

Inflation

Headline CPI eased, for a second consecutive month, to +1.9% y/y in December from +2.2% in November. Non-food inflation also decelerated for two months in a row +1.7%, as weak oil prices dampened transportation inflation. Food prices steadies at +2.5%, in which pork prices slipped to +1.5%. Core inflation steadied at +1.8% but has been getting weaker over the past year. PPI plunged significantly to +0.9%, from +2.7% in November. This is the lowest reading since September 2016. Continuous moderation in growth, weakness in oil prices and lower price pressure on imports due to recovery in renminbi suggest that risk to inflation is skewed to the downside. Upside surprise due to Lunar New Year should prove short-lived.

Credit Situation

The December report suggests that the credit situation improved in China. New renminbi loans were at RMB 1080B. While dropping from November's RMB 1250B, it came in stronger than consensus of RMB 825B and jumped 84.9% from the same period last year. Contributing to the strong annual growth were corporate bills, short-term household and corporate loans. Yet, long-term loans remain weak with loans to households slipping to RMB 308B from RMB 311B a year ago, and corporate lending easing to RMB 198B from last December's RMB 206B.

Total social financing (TSF) increased modestly to RMB 1590B, compared with RMB 1519B in November and RMB 1586B in last December. Yet, the reading was much stronger than consensus of RMB 1200B. looking into details, off-balance sheet contracted by a significant +10.8%. The pace of contraction has been accelerated. On a positive note, decline in off-balance sheet helps reduce the non-transparent channels of loans, thanks to the government's efforts in deleverging. On the flip side, it has removed some credit channels which were popular among private companies in China.

Next week, China would its GDP growth for 4Q18, as well as industrial production, retail sales and fixed investment data for December. the market expects growth had decelerated to +6.4%. For this year, the IMF expects China's economic growth would  slow to +6.2% in 2019, down from previous forecast of +6.4%. Similarly, the World Bank projects that GDP would expand +6.5% this year, down from +6.8% in 2018. The Chinese government would likely revise lower its growth target to 6-6.5%, form "around 6.5%" in 2018.

Pivot (invalidation): 1.3235

Our preference Long positions above 1.3235 with targets at 1.3295 & 1.3315 in extension.

Alternative scenario Below 1.3235 look for further downside with 1.3220 & 1.3195 as targets.

Comment The RSI is bullish and calls for further advance.

Pivot (invalidation): 0.9885

Our preference Long positions above 0.9885 with targets at 0.9930 & 0.9950 in extension.

Alternative scenario Below 0.9885 look for further downside with 0.9865 & 0.9845 as targets.

Comment The RSI advocates for further upside.

Pivot (invalidation): 2580.00

Our preference Long positions above 2580.00 with targets at 2636.00 & 2685.00 in extension.

Alternative scenario Below 2580.00 look for further downside with 2545.00 & 2520.00 as targets.

Comment The RSI is bullish and calls for further upside.

Pivot (invalidation): 10860.00

Our preference Long positions above 10860.00 with targets at 11000.00 & 11070.00 in extension.

Alternative scenario Below 10860.00 look for further downside with 10810.00 & 10760.00 as targets.

Comment The RSI is bullish and calls for further advance.

Pivot (invalidation): 51.55

Our preference Long positions above 51.55 with targets at 52.50 & 53.30 in extension.

Alternative scenario Below 51.55 look for further downside with 51.25 & 50.75 as targets.

Comment The RSI is mixed to bullish.

Pivot (invalidation): 15.6400

Our preference Short positions below 15.6400 with targets at 15.5200 & 15.4700 in extension.

Alternative scenario Above 15.6400 look for further upside with 15.6900 & 15.7600 as targets.

Comment The RSI is mixed to bearish.

Pivot (invalidation): 1290.25

Our preference Long positions above 1290.25 with targets at 1295.00 & 1297.00 in extension.

Alternative scenario Below 1290.25 look for further downside with 1287.75 & 1286.00 as targets.

Comment The RSI is mixed with a bullish bias.

ECB Executive Board member Sabine Lautenschlaeger, a known hawk, said the central bank could still raise interest rate in 2019. She told Politico that "I'll wait for the projections coming in March before I change my view". She added "I'm data-driven in this, and I think that as we are still in the environment we projected."

Also, pointing to recent dip in inflation, she said "It was clear that with the base effects of the energy prices, the inflation rate would drop". However, "The core inflation rate didn't dip that much."