CHINA PRESS: China Inclusive Finance-Prosperity Index Up In February

AUDUSD has rallied sharply driven by stronger HK/China equities. The pair is up 0.3% to 0.6369 and is also benefiting from the prospects of peace in Ukraine. It approached resistance at 0.6384 reaching a high of 0.6372, after clearing 0.6334 on Friday. The USD index is down 0.1%. US retail sales disappointed on Friday.

• Aussie is stronger against European currencies with AUDEUR up 0.1% to 0.6061 after a high of 0.6066. AUDGBP is 0.1% higher at 0.5054, close to the intraday peak of 0.5058.
• AUDJPY is off its intraday low of 96.44 to be flat at 96.73. AUDNZD tested 1.11 but is now down slightly to 1.1084. Both the RBA and RBNZ are forecast to cut rates this week but with NZ exceeding Australia with 50bp.
• Equities are mixed with the ASX down 0.8% but Hang Seng up 1.3% and S&P e-mini +0.1%. Oil prices are slightly lower with WTI -0.3% to $70.55/bbl. Copper is down 0.2% and iron ore slightly lower at around $104.50/t.
• Later the Fed’s Harker, Bowman and Waller speak, while there isn’t any US data due to the Presidents Day holiday. Euro area December trade data print and the Eurogroup meeting takes place.  

USD/CNH broke lower as onshore equities opened higher. We got to 7.2427, but sit back closer to 7.2500 in latest dealings. This leaves us sub the 100-day EMA (near 7.2590), while the 200-day is further south, close to 7.2330.

• Hong Kong equities continue to rally as well, up close to +1.4%, while onshore markets are tracking higher as well, albeit with a lower beta. The focus remains on tech trends. Goldman Sachs raised its CSI 300 and MSCI China targets on DeepSeek optimism (per BBG).
• Jack Ma will also reportedly meet with China President Xi Jinping, raising hopes of support for China's tech/private sector.
• The chart below plots USD/CNH, which is inverted on the chart against the China to global equity ratio. We are seeing meaningful outperformance of China equities and unlike the Q3 period last year, the CNH is not leading this move. 

Fig 1: USD/CNH (Inverted) Versus China To Global Equity Ratio 

Source: MNI - Market News/Bloomberg 

• At a conference the Conference for Emerging Market Economies organized by the Saudi Ministry of Finance and the International Monetary Fund in Saudi Arabia over the weekend, the PBOC Governor Pan spoke to the risks for emerging markets and the policy direction for China domestically.
• On Emerging Markets, the Governor pointed out that protectionism disrupts value chains and that increasing geopolitical conflicts restrict the flow of capital, technology, and labor.
• He raised concerns as to slower global growth as a challenge for the global economy suggesting that “if protectionism escalates, rising trade fluctuations will drive up inflation expectations and undermine medium-term growth,” whilst pointing to IMF forecasts for the near term to be around some of the lowest levels for 20 years.  
• A further risk he warned of was financial market instability and capital outflows as a result of uncertain monetary policies, as global financial markets re-price expectations for interest rate cuts from the Federal Reserve.   Higher US interest rates and dollar traditionally pose challenges for emerging economies.
• In that context Governor Pan pointed out that whilst most countries are seeing their currency suffer at the hands of a stronger dollar, his government’s efforts to stabilize the Yuan has been supporting and maintaining a more stable economic environment.
• Governor Pan highlighted the high level of public debt (in the context of the US interest rate uncertainty) and growing investor concerns as to fiscal sustainability could lead to bond market instability.
• On the domestic front, Pan indicated that more proactive fiscal policies can be expected and more accommodative monetary policy with the latter focused on boosting domestic consumption.
• Governor Pan acknowledged that domestically there was a moderating of risks from local government debt (given the policies implemented last year) and hinted at the improving outlook for the property sector.
• Despite these comments over the weekend, China’s bond market is weaker today with the CGB10YR higher in yield in this morning’s trading.