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Risk of external shock in China

Risk of external shock in China

The country’s foreign exchange regulator said China needs to strengthen macroprudential control and drive market expectations this year while preventing and mitigating the risk of external shocks.

The statement comes from the fact that the US Federal Reserve is expected to raise interest rates as early as March. China’s counterparts are stepping up monetary easing to support the economic slowdown and have expressed concern about possible capital outflows due to policy differences. The Chinese currency fell sharply in the Fed’s last tightening round in 2018.

China is ready to deal with external changes. This Fed tightening round may have less spillover than the previous round.

China’s government bond yields fell across the curve on Wednesday as official comments raised expectations that the country’s benchmark lending rates would fall sooner this week to support the chilly economy.

Despite the Fed’s tightening expectations for this round, cross-border lending and capital flows related to trade finance are relatively stable.

Regulators added that strong export growth, sufficient foreign exchange liquidity, and attractiveness of China’s assets should help China cope with changes in the external environment.

In 2021, the yuan rose 2.7% against the stronger dollar, making it the best performing emerging market currency. That profit continued until 2022, with a year-to-date profit of 0.2%.

currency

Inflation is a buzzword across major economies, and rising energy prices and supply bottlenecks can lead to product shortages. In the euro area, inflation rose from 4.9% to 5.0% in December. The core CPI was flat at 2.6% year-on-year. Both of these measurements agreed with the majority. Markets expect the Fed to follow in the footsteps of the Federal Reserve, forcing the ECB to reduce asset purchases and raise interest rates, despite Lagarde’s rhetoric. This hawkish outlook has led to the recent rise in German foreign bond yields. For the first time since 2019, 10-year yields moved to the positive territory on Wednesday.

EUR / USD As US yields decline, they rise after a temporary decline.After forming a bearish outside sun candle, EUR / USD opened at 1.1311

It settled at 1.1301 in early Asia before resuming the rest of the uptrend in the morning. The 10-year US Treasury yield dropped to 1.77%, supporting the pair.

The EUR / USD pair reached a high of 1.1335 before settling near 1.1325 / 30. Buyers fell between 1.1230 / 50 and were supported on the 1.1284 trend line.

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Risk of external shock in China

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