IGM FX and Rates
27 Mar 2020
China Insight: Bond inflows pick up amid weak economy
It's FOMC day and the market is already on the sidelines.
Instead, everyone is watching the updated dot plots and whether the median dot for 2017 is marked down.
Even if the median 2017 dot is left at 3, the question one needs to ask is whether the market will react with outright scepticism?
We refer back to our 07 Jun viewpoint and 05 Jun viewpoint where we talked about how we expect a more subdued US econ rebound given the lack of traction in wage growth/consumer spending/biz investments.
Note that we have long been sceptical of the Trump effect, and the enduring failure to push through on fiscal/tax policies is a fundamental negative.
Implicitly, we suspect the market will sell the USD and buy USTs post-FOMC.
IGM Credit, IGM FX and Rates
By Tim Cheung 23 Mar 2020
China's activity growth data for February were much weaker than expected, suggesting there is a very good chance the Q1 GDP y/y will fall into negative territory. Among forecasts from major investment banks, the most pessimistic ones for China's Q1 growth y/y are now in the -7/-9% range instead of +2/+3% territory seen a month ago, while that for the 2020 full-year growth are in the +1/+3% area rather than +4/+5%. To avoid the economy worsening further in the aftermath of the COVID-19 outbreak, Beijing inevitably has to ramp up fiscal spending substantially over the rest of the year. Given the postponement of the National People’s Congress (NPC) meeting which was initially scheduled for early March, we so far have no official data on how much the government will spend in 2020. However, with the onshore CNY IRS curve steepening sharply recently (chart 1), we doubt the potential increase in government expenditure will be small. Meanwhile, we reckon most (if not all) of the extra spending will be financed by the issuance of special bonds, in particular, the long-term ones. As per chart 2, special bond issuance increased substantially in Jan and Feb, which may be setting a trend for most of the year.
Topics Industry News