Forex Flash: China “splash” concerns – Merrill Lynch

FXstreet.com (Barcelona) - Merrill Lynch analysts are concerned that China is making a "splash" by its own, after having been affected by ripples from the European crisis. "Easing tensions in Europe following decisive Fed and ECB actions on the one hand, and persisting soft Chinese data on the other have focused investor concerns on Chinese spillovers", wrote analyst Gustavo Reis, observing wobbling commodity prices on the sub-50 Chinese PMIs and a RBA rate cut partly due to the "more moderate Chinese expansion".

BofA Merrill Lynch analysts are also claiming that the higher wages in China, contributing to a roughly 10% REER appreciation over the past year, are "taking the wind out of export growth", and blaming the relatively tight monetary policy as well.

"As our strategists highlight, the key 7-day repo rate has averaged the same 3.4% this year as in 2011 despite
inflation much lower inflation. Interest rates have moved significantly higher since June, and so have credit spreads", said Reis, still unsure if the PboC has an easing bias. The true extent of the vulnerabilities in
the property market and in the banking systemare the key: "the larger the degree of home-made ailments, the greater the external impact of the China "shock"", added Reis.