Yuan-der pressure

Five Things - Asia

The Chinese yuan is under pressure, Asian equities face a mixed start and Hong Kong bankers are losing out to mainland rivals. Here are some of the things people in markets are talking about today.

Cooling the Yuan

China's policy makers acted to restrain a rally in the yuan by removing rules that made betting against the currency expensive. Financial institutions will no longer need to set aside cash when purchasing foreign exchange for clients through currency forwards, effective from Monday, according to a statement from the People's Bank of China. Banks previously had to hold 20% of sales on some foreign exchange forward contracts, a move imposed two years ago when the currency slumped toward 7 per dollar. The offshore rate dropped as much as 0.7% against the greenback in early Monday trading. 

Market Open

Asian stock futures pointed to a mixed start for equities, and S&P 500 futures slipped at the open. The yuan was about 0.6% lower against the dollar and the Australian and New Zealand dollars also slipped as foreign exchange markets opened. Last week, the S&P 500 ended higher as some traders bet U.S. lawmakers are moving closer to reaching an agreement to provide more fiscal stimulus. The daily currency fixing in China will be closely watched on Monday after the central bank's step to restrain the rally. Focus will soon turn to earnings season on Wall Street, with big banks due to report results.

Stimulus Saga

President Donald Trump and House Speaker Nancy Pelosi blamed each other for a lack of progress on a new plan to support the U.S. economy, while a senior White House aide said he expects talks to continue and a Fed official said fiscal help is sorely needed. After a week of shifting signals on the amount of stimulus and how to get there, Trump said on Fox News that Republicans are "having a hard time with Nancy Pelosi." Pelosi labeled the administration's offer on dealing with the health impact of the virus pandemic "grossly inadequate."  White House economic adviser Larry Kudlow said earlier he expects Treasury Secretary Steven Mnuchin and Pelosi to hold more talks this week. Mnuchin may increase the amount of aid the administration is offering, Kudlow said on CNN's "State of the Union." While a stimulus deal isn't essential to the U.S. recovery from the coronavirus pandemic, "I don't think it's dead at all," Kudlow said.

Status Lost

Hong Kong's homegrown investment bankers are rapidly losing their status as the city's go-to dealmakers, supplanted by mainland Chinese rivals who now hold a majority of senior jobs in Asia's biggest financial hub. While the shift has long seemed inevitable given the expanding pool of mainland talent and dominant role of Chinese issuers in Hong Kong, the recent pace of change has jolted even some industry veterans. They say it's partly explained by a reluctance among Chinese securities firms to hire and promote Hongkongers after anti-government protests rocked the former British colony in 2019. Locals' share of investment banking jobs in the city has slumped to about 30% from 40% two years ago, with 60% of roles now filled by mainlanders and 10% by overseas nationals, according to Robert Walters Plc, a recruiting company. 

Economic Shift

A rare regime change in economic policy is edging central bankers out of the pivotal role they have played for decades. Fiscal policy, which fell out of fashion as an engine of economic growth during the inflationary 1970s, has been front-and-center in the fight against Covid-19. Governments have subsidized wages, mailed checks to households and guaranteed loans for business. They've run up record budget deficits on the way — an approach that economists have gradually come to support, ever since the last big crash in 2008 ushered in a decade of tepid growth. And the public spending that put a floor under the pandemic slump is increasingly seen as vital for a sustained recovery too. When it looks like drying up, as it did in the U.S. last week, investors start to worry. How long to keep the taps open will be a key theme at this week's International Monetary Fund meetings and the biggest challenge for politicians in charge of national budgets, once they emerge from crisis-fighting mode.

What We've Been Reading

This is what's caught our eye over the past 24 hours:

And finally, here's what Tracy's interested in today

For all the talk of moving manufacturing away from China, the unusual events of 2020 seem to have so far solidified the country's role as the "factory of the world." As the coronavirus outbreak intensified in March, China was able to ramp up its own domestic manufacturing to produce the medical supplies and personal protective equipment (PPP) needed by developed countries in the U.S., Europe and Asia.

But as Nomura economists led by Ting Lu point out, China has ramped up production of more than just ventilators and face masks this year, with exports of desktop computers and laptops also increasing as more people worked from home. Few expect this resilience in China's exports to last forever — demand for work-from-home products like computers will naturally start to tail off and consumption in the U.S. could drop if politicians don't agree on another round of stimulus. But the fact that China's export boom has spanned everything from consumer favorites to sensitive medical equipment shows just how difficult it will be for other manufacturing hubs to take its place. China's trade data for September comes out on Tuesday.

You can follow Tracy Alloway on Twitter at @tracyalloway.




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