HALISTER1: China’s GDP Data May Embolden Fed on Rate Increases: Economists

China’s GDP Data May Embolden Fed on Rate Increases: Economists

(Bloomberg) -- Signs of stabilization in China’s economy may give Federal Reserve leeway to raise interest rates faster than currently expected, according to economists at Guosen Securities and Huabao Trust.
  • That would strengthen USD/CNY, possibly to 6.60 by end 2Q, says Janice Yu at Guosen Securities; Huabao’s Nie Wen sees pair at 6.60 by year end
    • RBC Capital Markets head of FX strategy Sue Trinh maintains bearish outlook on yuan; USD/CNY at 6.80 end 2Q, 6.95 year end
    • USD/CNY up 0.09% at 6.4828 today
  • China’s economic performance in 1Q may have been better than was expected earlier in the year; median est. in Bloomberg survey is for 6.7% y/y growth vs +6.8% in 4Q
    • Data suggest signs of stabilization, with recovery in exports, firmer inflation and higher home prices
  • Still, Commerzbank and RBC says economy may weaken again
    • Zhou Hao, senior economist at Commerzbank, says property investment could slow in coming months; NOTE: Cities including Shanghai and Shenzhen step in to cool housing market
    • If growth activity starts to fade, PBOC may cut policy rate and RRR as early as this quarter: Zhou
    • Says USD/CNY unlikely to stay under 6.50 for long; sees 6.65 end-2Q, 6.75 end-2016
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Hao Zhou (Commerzbank AG)
Janice Yu (Guosen Securities HK Financial Holdings Co Ltd)
Nie Wen (Huabao Trust Co Ltd)
Sue Trinh (Royal Bank of Canada)

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