HALISTER1: CHINA PREVIEW: FX Reserves May Fall Again as Brexit Takes Toll

CHINA PREVIEW: FX Reserves May Fall Again as Brexit Takes Toll

(Bloomberg) -- China’s FX reserves probably declined for second month in June, mainly because of valuation effect and capital outflows, economists say.
  • Reserves likely fell $25b to $3.17t in June, according to average est. in Bloomberg survey; they dropped to $3.19t in May after rising in March and April; data due July 7
  • USD/CNY strengthened 1.06% to 6.6480 last month; Dollar Index rose 0.26% to 96.14
  • U.K. REFERENDUM HAD NEGATIVE IMPACT ON FX RESERVES
    • NOTE: EUR fell 0.23% vs USD in June and GBP slid 8.09%; JPY rose 7.3%
    • Valuation effect lowered reserves by $20b as EUR and GBP assets amounted to 22% of total, while only 1% in JPY, says Capital Economics China economist Julian Evans- Pritchard, top ranked forecaster of this data
    • Second-ranked Nie Wen, economist at Huabao Trust, says valuation effect may have cut reserves by $15b; ests. EUR assets accounted for around 20% and yen about 10%; no est. for GBP
  • CAPITAL OUTFLOWS
    • Net capital outflows likely reached $30b last month, according to Capital Economics’ model: Evans-Pritchard
    • Says PBOC may have spent $20b defending yuan in days around Brexit vote
    • Talk of yuan depreciation has been increasing in onshore market since June, prompting further capital outflows: Nie; estimates net outflow at $15b
  • RESERVES FORECAST
    • Evans-Pritchard sees total $40b drop to $3.15t in June
    • Nie forecasts $30b drop to $3.16t
    • Either would be biggest monthly decline since $99b in Jan.
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Julian Evans-Pritchard (Capital Economics Asia Pte Ltd)
Nie Wen (Huabao Trust Co Ltd)

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