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The Chinese economy is weak, and the bears of RMB continue to stay strong😪
In China, any excitement over the surprise lending facility rate cut (2.65% --> 2.50%) was quickly erased by yet another set of very weak activity figures in retail sales and industrial production. The National Bureau of Statistics also announced that they would stop publishing youth jobless data as statistics need to be further 'improved and optimized', naturally raising concerns about the depth of weakness in the local labour markets. Furthermore, with a lot of core economic rebalancing concerns still unaddressed, both A-shares and HSI were unable to react positively to the rate cut, and CNH FX took the brunt of the hit as the spot has currently traded up to a high of 7.3359, and within shouting distance of the 10y high.
Unlike the move earlier in the year, the current weakness in spot is joined by a concurrent spike in FX forward points and upside option skew as hedge funds are piling into CNY shorts in every expression they can find. CNY FX derivatives and options were once again the most actively traded global FX pair yesterday, with volumes 3x above average again. Meanwhile, 1m forward CNH Points have spiked close back to YTD highs, with implied yields at 1yr highs at 3.40% as the bearish trade is building momentum.
