This daily digest focuses on Yuan rates, major Chinese economic data, market sentiment, new developments in China’s foreign exchange policies, changes in financial market regulations, as well as market news typically available only in Chinese-language sources.

- The implied volatility for the USD/CNH remains stable despite of record-setting levels.

- The electricity used by manufacturing companies increased at a faster pace in October.

- Chinese companies excluding banks, securities and insurances attracted 666.3 billion Yuan of foreign investment in January to October.

Yuan Rates

- The PBOC guided the Yuan lower against the U.S. Dollar for the 10th consecutive trading day on Thursday: the Yuan was weakened by -100 pips or -0.15% to 6.8692. As of 12:20PM EST, the onshore Yuan has bounced slightly with the USD/CNY dropping to below 6.87; the offshore Yuan has extended losses against its U.S. counterpart, with the USD/CNH trading around 6.892.

Despite that the Yuan has been setting records on almost daily basis, the implied volatility from the option market shows that investors remain relatively calm, unlike the panic that was seen in January to February. This is because Yuan’s losses against the Dollar is driven by the Dollar rally, an external factor, rather than the Yuan weakness, an internal factor. As of 12:20PM EST, the U.S. Dollar (via DXY) has soared 1.46% this week, while the onshore and offshore Yuan only lost 0.93% and 0.99% against it respectively.

Data Downloaded from Bloomberg; chart prepared by Renee Mu.

Following Trump’s win in the U.S. election, the implied volatility for the USD/CNH picked up again. Similar rallies were also seen in other Dollar pairs, such as the USD/JPY, EUR/USD and GBP/USD. This means that the increase in Yuan’s implied volatility was driven by external factor as well. As the December Fed rate hike is back on the table, the implied volatility for Dollar pairs steadies amid a clearer outlook of the Dollar.

Data Downloaded from Bloomberg; chart prepared by Renee Mu.

Market News

Sina News: China’s most important online media source, similar to CNN in the US. They also own a Chinese version of Twitter, called Weibo, with around 200 million active users monthly.

- China’s total electricity consumption increased +7.0% to 489 billion kWh on an annualized basis. The electricity consumption in China has been a commonly used leading indicator to predict Chinese GDP. In terms of industries, the electricity consumption used by the agricultural sector, manufacturing sector and tertiary sector increased by +5.3%, +2.3% and +11.6% respectively over the first ten months of 2016. The electricity used by manufacturing companies has been expanding at a faster pace, which is a good sign for the sector: the growth was 2.0% in September and August, 1.6% in July, 0.5% in June and 0.4% in May.

China Finance Information: a finance online media administrated by Xinhua Agency.

- The Foreign Direct Investment (FDI) to China excluding banks, securities and insurances rose +4.2% in January to October to 666.3 billion Yuan from a year ago, according to a report released by the Commerce Ministry on Thursday. In terms of regions, FDI from the U.S. and EU countries grew with the fast rates, up +79.8% and +41.5% respectively. In terms of industries, China’s high-tech service industries attracted 79.18 billion Yuan of investment, rising +90.2% on an annualized basis.