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Forex pairs in this Article » EUR/USD, USD/JPY (Bali) - According to Greg Gibbs, FX Strategist at RBS, in a note to clients, financial conditions continue to tighten in China, posing significant risks to the economy.

Key Quotes

"Rates are rising rapidly to new highs across the curve from one to 10 years since at least 2007. And this is happening despite stable inflation and growth outlook at around the lowest real rate over this period. Tightening financial conditions pose a risk to growth coming at a time when the economy is already weaker."

"Today I read analysis reported in the Wall Street Journal that suggests the property sector is losing momentum. It reports that prices of new homes rose 9%y/y in November, up in 66 out of 70 cities.It also reports that the shares of property developers are down 9% year-to-date, more than the 5.5% fall for the overall Shanghai index..."

"The article also points out that higher rates in China may threaten the property market, especially if the government moves ahead with plans to remove the ceiling on bank deposit rates."

"A strategy that has worked well and probably will continue to do so is to be short AUD and JPY against the USD. It benefits from a strong USD, but incorporates a bit of cover if the market turns risk averse over tightening financial conditions in China."
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