Chinese FDI improves in January as markets calm

Tuesday, February 16, 2016

Chinese data released yesterday and overnight signalled towards a more upbeat outlook than previously expected as Beijing’s efforts were slowly starting to leave a lasting effect. Foreign direct investment increased 3.2% y/y in January in a sharp turnaround of fortune from the previous month’s reading of -5.8% y/y and significantly better than the -5.9% y/y reading expected by market participants. Lending in January also saw a significant increase as new yuan loans rose to 2.5tn yuan, a record high and up from 597.8bn yuan the previous month as investors took advantage of the loose monetary environment. The PBOC had stepped up supportive efforts significantly in the run up to the Lunar New Year celebrations and banks took full advantage of this by increasing their balance sheets as well as reducing their exposure to foreign currency loans.

The spot offshore yuan exchange rate snapped a nine session bull run against the USD overnight as risk aversion continued to dissipate steadily, providing support for the dollar to regain some of the recent losses. 6.5000 seems to be a key level and after a swing below on Monday towards 6.4866 the offshore exchange rate found support around this level overnight and traded back towards 6.5215 at one point. Market pessimism which has dominated investor sentiment at the start of 2016 is slowly turning as investors view the recent run on global risk assets as overdone and we hope to see calm return to global markets over the coming sessions.

Crude futures have extended gains for a third straight session with activity overnight and early this morning seeing front month Brent futures post firm gains and stabilise around $35.40/bbl early on. Support at the 50 day MA looks solid and with global equity markets taking their cues from the energy market we could see additional gains across risk assets as investors shrug off the recent volatility. Market participants are hopeful that talks in Doha between the Saudi oil minister and his Russian and Venezuelan counterparts will produce an outcome that could see current production levels re-evaluated. However, investors should approach this meeting with caution as previous attempts to bring about a consensus agreement on production have so far yielded little in the way of market stability.

Chinese FDI rebounds in January

CNDIINRY Index China FDI Foreig 2016 02 16 08 06 00

Offshore yuan exchange rate stabilises around 6.5000

CNH Curncy Offshore Deliverable 2016 02 16 08 13 31

Front month Brent futures extend gains 

CO1 Comdty Generic 1St CO Fut 2016 02 16 08 20 06

Events for today

0930

UK

Jan

CPI

0930

UK

Jan

PPI

1500

US

Jan

NAHB Housing Market Index

Topics: Crude oil, Brent, PBOC, CNH
More from: Kash Kamal