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China: More easing to boost a key sector - Danske

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 2, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
    Likes Received:
    FXStreet (Córdoba) - According to analysts from Danske Bank, Chinese policymakers have a much higher priority in supporting construction and dealing with overcapacity in the housing sector, than boosting exports, making difficult to consider another devaluation of the yuan.

    Key Quotes:

    “China has today eased policy further aiming its ammunition at the ailing construction sector. It has cut the down payment for first-time buyers from 25% to 20% (in cities without purchase restrictions such as Beijing and Shanghai). The down payment was also reduced last year, by 5 percentage points, in an attempt to support housing.”

    “Supporting construction and dealing with overcapacity has a much higher priority in Chinese policymaking than boosting exports. This is another reason we do not see a devaluation as a likely move from China, as it would also risk destabilising the Chinese economy due to capital outflows and a global currency war. In contrast with cutting interest rates, it also does not risk adding to the depreciation pressure on the CNY.”

    “A moderate recovery of the construction sector is part of our case for a moderate improvement in the Chinese economy outside services. This should help ease the market fears of a Chinese recession.”

    “The hard landing in Chinese construction is a major reason global metal prices have been suppressed. (…) The base metal markets have reacted positively to the news today, with prices up 1.0-1.5% despite overall negative risk sentiment today.”

    A turn in base metal prices would also help to reduce global deflationary pressures. Hence this should have a positive impact on global inflation expectations and bond yields.”
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