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.

Yuan Rates

- The PBOC set the Yuan fix to a new six-year low on Monday: the Yuan was weakened by -222 pips or -0.33% against the U.S. Dollar to 6.7379 from the previous trading day. In the late portion of the Asian session, the offshore USD/CNH climbed beyond 6.75, the first time since January; the onshore USD/CNY touched 6.74, the highest level since September 2010. The next resistance level for the USD/CNH could be found around the January high of 6.7584.

USD/CNH 1-Day

(Click on image to enlarge)

Prepared by Renee Mu.

Yuan’s recent drops are likely contributed to the -6.15% plunge in China’s Dollar-denominated B-shares on Monday. B-share markets provide an access for mainland companies to raise funds from global investors. In the last one and half hours of the trading on Monday, the Shanghai B-share Index fell as much as -6.73% before closing down -6.15%, the largest daily loss since January.

The cause of this unusual sell-off is not clear, but the move itself may indicate that global investors want to reduce holdings in Chinese stocks and withdraw their investment. Also, this is not the first time that China’s B-shares tumbled following Yuan weakness. On Thursday January 7, 2016, the offshore Yuan dropped to the lowest level since 2010, with the USD/CNH touching 6.7584. The next Monday, January 11th, the Shanghai B-share Index plunged -8.06%.

(Click on image to enlarge)

Data downloaded from Bloomberg; chart prepared by Renee Mu.

Market News

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

- China’s coal companies have cut productions by 153 million tonnes by the end of August, about 61% of this year’s capacity reduction target; the steel firms have reduced 34.68 million tons of productions, taking up 77% of the annual goal. In January to August, China’s coal production has dropped -10% on an annualizedbasis from a year ago, according to China National Development and Reform Commission.

- The PBOC requires 17 leading commercial banks to curb home loans at a meeting with the bank executives. Amid the soaring housing prices and home loans, the regulator demands banks to tighten new lending to home purchasers and better manage their credit risks. In August, home loans rose more than double of the increase in the month prior and have taken up 71.2% of the new Yuan loans.