The yuan went crazy on Monday!
At around 5:30 pm on Monday, the onshore and offshore RMB continued to expand against the US dollar, both rising above 7.17, rising by more than 800 basis points and 500 basis points respectively during the day. At the same time, the U.S. dollar index also fell, but compared with the increase in the RMB, the decline in the U.S. dollar index was not large.
From the news perspective, first of all, according to Reuters, the continued development of RMB-denominated international bonds and the rise of overseas RMB loan business have enabled the RMB to surpass the euro and become the world’s second largest trade financingcurrency;Secondly, according to the peoplebankAccording to website news, with the approval of the State Council, the Chinese people recentlybankwith Saudi CentralbankA bilateral local currency swap agreement was signed, with a swap scale of 50 billion yuan/26 billion Saudi riyals. The agreement is valid for three years and can be extended with the consent of both parties. These two major benefits have stimulated the strengthening of the RMB to a certain extent.
It is worth noting that the strengthening of the RMB this time was not due to a single unexpected event, but was paved by a series of positive events. These benefits include: regulatory authorities continue to voice expectations for stabilizing the exchange rate of the RMB exchange rate, countercyclical policies continue to be introduced to continue to resolve financial risks, geopolitical tensions between China and the United States have eased, the U.S. dollar has peaked and fallen, the seasonal settlement time has arrived, and the central parity rate of the RMB continues Stay low and so on. Only with the collective efforts of these benefits can the RMB enjoy a good situation. So, what is the future outlook for the RMB? How much help will it provide to the secondary market?
Momentum like a rainbow
November 20th is a “big day” for the RMB. On this day, the onshore RMB against the US dollar and the offshore RMB against the US dollar both surged. Among them, the onshore RMB against the US dollar once hit the 7.17 mark during the session, rising nearly 800 basis points during the day, hitting a new high in the past three and a half months; the offshore RMB against the US dollar It rose above the 7.17 mark, with the largest increase reaching nearly 600 basis points.
From the news perspective, there are two pieces of news that are worthy of attention:
First, according to overseas news, Reuters reported that the continued development of RMB-denominated international bonds and the rise of overseas RMB loan business have enabled the RMB to surpass the euro and become the world’s second largest trade financing currency.
International financial institutions are reportedly raising RMB funds through the issuance of Chinese “Panda Bonds” and “Dim Sum Bonds” denominated in RMB. National Bank of Canada raised 1 billion yuan (approximately $138.6 million) by issuing three-year “panda bonds” in October.
The People’s Bank of China has been encouraging domestic banks to extend loans to international companies and encourage the yuan to be used more widely overseas, the report said. At the same time, “Panda bonds are steadily advancing the currency function of RMB financing.” Data from the International Funds Settlement System (SWIFT) show that the RMB achieved a record increase in global payment share in September, with its share rising from 3.9% at the beginning of the year to 5.8%, surpassing the euro’s share for the first time.
Second, according to the website of the People’s Bank of China, with the approval of the State Council, the People’s Bank of China and the Central Bank of Saudi Arabia recently signed a bilateral local currency swap agreement. The swap scale is 50 billion yuan/26 billion Saudi riyals. The agreement is valid for three years. It can be extended if both parties agree. The establishment of a bilateral currency swap arrangement between China and Saudi Arabia will help strengthen financial cooperation between the two countries, expand the use of local currencies between China and Saudi Arabia, and promote trade and investment facilitation between the two countries.
After these two news were released, the RMB experienced a significant increase. Historically, RMB appreciation has been beneficial to export-oriented companies, and air transportation, real estate, and resource companies have all benefited. If there is a trend appreciation of the local currency, it will trigger systemic market conditions in the equity market.But judging from Monday’s stock market conditions, foreign capitalnet inflowIt is not obvious, and the market increase is not huge. Obviously, the stock market did not fully reflect this positive.
Seven major benefits are collectively exerted
In fact, this time the appreciation of the RMB was not initiated by a single rescue force, but by the combined force of the market. There are seven visible benefits behind this combined force.
1. PeacesecuritiesIt is believed that since late June, the policy authorities have continuously expressed expectations for stabilizing the exchange rate for the RMB exchange rate, and have also successively adopted measures to increase macro-prudential adjustment parameters for cross-border financing, increase the cost of offshore RMB funds, and significantly deviate from the central parity rate from the previous day’s closing price. This helps reduce the procyclicality of the market and stabilize exchange rate expectations.
2. Countercyclical adjustment policies continue to be introduced, and economic data in the third quarter have shown positive signs of recovery. Both export growth and domestic consumption and investment have shown marginal rebound. In addition, the issuance of special government bonds has increased the market’s imagination of the Chinese government’s expansionary fiscal policy in 2024.
3. Financial risks can be continuously resolved. At the end of October 2023, the first central financial work conference was held. The meeting pointed out that the reasonable financing needs of real estate enterprises with different ownerships should be met equally. On November 7, the People’s Bank of China, the State Administration of Financial Supervision, the China Securities Regulatory Commission and the Ministry of Housing and Urban-Rural Development jointly convened a discussion with several real estate companies to understand the industry’s funding situation and corporate financing needs. On November 17, the People’s Bank of China, the State Administration of Financial Supervision, and the China Securities Regulatory Commission jointly held a symposium on financial institutions to study the recent real estate finance,creditKey tasks include investment and financing platform debt risk resolution.
4. The geopolitical situation dominated by China and the United States shows signs of easing. From November 14th to 17th, 2023, the China-US Presidential Meeting was held in San Francisco, USA. Prior to this, important political figures such as the US Secretary of State, Treasury Secretary, Commerce Secretary, Senate Majority Leader Schumer, and California Governor visited China, as well as business tycoons such as Bill Gates, Musk, and Cook visited China. . These meetings and contacts show that Sino-US relations have shown signs of improvement.
5. The U.S. dollar index peaked and fell. As the U.S. price index fell and expectations of a rate hike by the Federal Reserve reversed, the U.S. dollar index and U.S. Treasury yields began to fall. This is undoubtedly the most important variable for global non-U.S. currencies. An inflection point for global liquidity may have arrived.
6. As the end of the year approaches, the peak of foreign exchange settlement is approaching. Since the beginning of this year, the willingness of enterprises to settle foreign exchange has been low, and the scale of foreign exchange settlement and sales by banks on behalf of customers has been significantly lower than in previous years.Quite a fewBrokerage firmIt is believed that with the increasing demand for centralized foreign exchange settlement by enterprises at the end of the year, it will be very helpful to boost the RMB exchange rate.
7. From the perspective of technical guidance on the exchange rate, in the past two months, the central parity rate of RMB has been basically more than 100 basis points higher than the offshore RMB exchange rate. From a historical perspective, the central parity rate of the RMB continues to remain high, which has strong guidance for the direction of the RMB exchange rate.
How will the market outlook go?
So, what is the outlook for the RMB exchange rate? How much help will it bring to the equity market?
SafetysecuritiesIt is believed that the RMB exchange rate will still be affected by internal and external factors. The external factors are mainly changes in the US dollar index, and internal factors include the restoration of domestic economic momentum, the international balance of payments, and policy expectations for stabilizing growth. The biggest stage of pressure on the depreciation of the RMB exchange rate has passed, and factors favorable to the RMB exchange rate are gradually accumulating. There is still room for a slight appreciation of the RMB exchange rate during the year, and it may fluctuate between 7.15-7.35 in the short term.
For the U.S. dollar index, it is likely to maintain a range-bound trend, and the center of the shock will move downward. The direction of the U.S. dollar index will still be managed by economic inflation data and the Federal Reserve’s expectations for future monetary policy.At present, overseas transactions have entered a data-driven mode. Before the economic data weakens significantly, the Federal Reserve hopes thatinterest rateStay at restrictive levels.whenAmerican FinancialConditions due to the appreciation of the U.S. dollar and U.S. debtinterest rateWhen the surge leads to excessive tightening, the Fed may send a dovish signal; similarly, if the market prematurely trades interest rate cut expectations, resulting inAmerican FinancialWhen conditions are loose, the Federal Reserve will release a hawkish signal, so in this environment, it is difficult for the U.S. dollar index to trend upward or downward. However, from a longer-term perspective, the U.S. dollar index will fluctuate and weaken.
The domestic economy’s endogenous growth momentum is expected to improve in twists and turns, and the more expansionary fiscal policy has also made the market more optimistic about the growth rate of infrastructure investment at the end of this year and next year. The Central Financial Work Conference attaches great importance to risk mitigation. Regulatory authorities have successively issued policies to mitigate real estate risks and local government debts. The possibility of collective defaults or even bankruptcy of private developers has been significantly reduced. With the upcoming Central Economic Work Conference, the market will have clearer expectations for next year’s economic growth.
So, how much help will it bring to the equity market? In fact, the reaction of Hong Kong stocks was greater than that of A shares, and the net inflow of foreign capital did not increase rapidly due to the appreciation of the RMB. Analysts believe that on the one hand, it may be necessary to observe the subsequent trend of the RMB. If it continues to appreciate, it will definitely bring incremental funds to the stock market; on the other hand, the properties of funds are different, and there are also distinctions between stock and bond markets. At present, bond issuance is still continuing, and towards the end of the year, all departments need funds, so the interest rates in the capital market are relatively high. In addition, since the real estate problem has not been completely resolved and the overall macroeconomic trend is not too clear, it may still take time for long-term allocation of funds to enter the market. After the two major meetings at the end of the year are held, the plans for next year will be clear, and funds may be allocated to enter the market one after another. Therefore, we can still look forward to the New Year’s Eve market and even the spring offensive.
(Source of article: Brokerage China)
Source of article: Brokerage China
Original title: Just now, the central bank made a big move! The yuan surged 800 points, surpassing the euro for the first time! Seven major benefits are coming together, and A-shares are enjoying a moment of comfort?
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