Financial Market Ushered In Super Week: RMB SDR Examination

When RMB was included in the SDR (SDRs) assessment in November 30th, the market generally believed that the basket of renminbi was a foregone conclusion, and expected to help stabilize the RMB exchange rate in the short term.

However, most institutions believe that the probability of RMB exchange rate continued to depreciate in 2016 is greater, and the depreciation rate predicted by domestic institutions is more moderate than that of overseas institutions, and the gradual depreciation is more feasible.

In a recently published report, Barclays strategist Andreas Kolbe pointed out that the introduction of RMB into SDR may indicate another beginning of the trend of depreciation.

Barclays suggested that through the 6 months to do more U.S. dollars / offshore RMB, the target position will be 6.80, and the stop loss will be 6.18815.

The regulatory authorities are committed to stabilizing capital flows, and the real effective exchange rate of the renminbi is strong and overvalued, which will guide the RMB to weaken.

The downward trend of China's economic growth and capital outflow also show one of the factors of empty RMB.

It is estimated that at the end of 2015, the RMB on the shore will be seen against the US dollar at the end of 6.402016, and the material will be located in the 6.90 region.

The US bank Merrill Lynch warned that in the next year, the "huge differentiation" between China and the US will result in the pressure on the renminbi. The pressure of depreciation will increase sharply after the IMF's vote on SDR in the end of the month.

The difference in monetary policy between China and the United States next year will dominate the continued depreciation of the RMB against the US dollar, and will buy a six month long term US dollar / offshore renminbi as the "top trading" strategy next year.

Xia Le, chief economist of Spain's external bank, said that it seems that the renminbi's accession to the SDR should be confirmed. The pressure of RMB depreciation is still there.

The central bank will gradually withdraw from the current market intervention and do not rule out the possibility of a one-off depreciation.

At the end of next year, the yuan will be depreciated to 6.8 yuan against the US dollar. The central bank will control the depreciation rate next year to less than 5%.

In the medium to long term, the diversification of the global market for Renminbi assets will benefit the renminbi.

The increase in the use of reserve currency will also provide support for the RMB in the medium and long term.

The foreign media survey shows that the popularity of most emerging Asian currencies has improved over the past week. In 2016, it is expected that interest rates will only slow up after the Federal Reserve is expected to raise interest rates next month.

According to a survey conducted by 19 fund managers, foreign exchange traders and analysts from Tuesday to Thursday, the short positions of the RMB are at a three month high.

The RMB in China was USD 6.3938 against the US dollar on Friday, which was down compared with the previous day.

A number of weighty headlines appeared in the same week, making this week's global financial market a veritable "super week".

Just this week, the prospect of RMB internationalization is expected to usher in a milestone: the suspense about whether RMB will be included in the International Monetary Fund (IMF) special drawing rights (SDR) is about to be announced.

At the same time, the ECB is expected to further increase its easing policy, and the OPEC is about to decide whether to cut production, affecting the trend of the euro exchange rate and international oil prices.

In China, how the IPO gate will affect A shares this week has become the most concerned topic for domestic investors.

Many people want to know if the good "slow cow" is still there?

In the global financial field, whether the renminbi will join the suspense of a basket of currencies in SDR is a major event this week.

IMF will discuss SDR matters on the morning of November 30th in Washington time. After that, IMF President Lagarde is expected to unveiled the new SDR currency basket.

Once the "basket", it is clear that the renminbi has been won.

The recognition of the renminbi marks another step towards the status of the international reserve currency.

It is also worth noting that once the RMB is included in the SDR, how much weight will be gained? Currently, the weights of the four currencies of the US dollar, euro, pound and yen are 45%, 36%, 10% and 9% respectively, and the weight of the currency in SDR will also reflect the importance of the country in the global trade and financial system.

According to IMF's previous report, the monetary weight itself is based on the amount of money held by the issuer's exporting country and other countries as the foreign exchange reserve, and the relative proportion of exports and reserves is 60% and 40% respectively.

Zhu Haibin, chief economist of JP Morgan, said: "IMF recommended in August that the weight of RMB in the new SDR basket will be 14%~16%.

The results we calculated are basically the same.

Ji Moze, chief economist of the Asia Pacific Asset Management Co, told the first financial daily: "China's export volume is about US $2 trillion, and foreign exchange reserves have dropped from US $3 trillion and 730 billion at the end of 3 this year to US $3 trillion and 530 billion at the end of 10, so we expect that the weight of the yuan will probably be 10%, which is lower than IMF's previous forecast."

The line of sight moves to Europe and the United States.

The trend this week is the most affecting market nerves.

The US report on non farm employment will be released on Friday. The report is the last non farm employment report before the Fed released its interest rate resolution in December 16th.

It is widely expected that the Fed will decide to raise interest rates at the December meeting, and non farm employment data will be the latest reference for the Fed's decision.

In addition, Federal Reserve Chairman Yellen will give two speeches this week, including a speech at the Washington Economic Club on Wednesday and a speech at the Joint Economic Committee hearing on Thursday. This is an important opportunity for the market to collect signals from the Federal Reserve in mid December.

When the Fed is about to raise interest rates, the divergence of monetary policy between the European Central Bank and the US central bank may widen further.

On Thursday, the European Central Bank will hold a conference on interest rates, and the second round of quantitative easing (QE2), interest rate cuts and even graded interest rates may become "new weapons".

The expansion of QE comes from the conference on interest rates held in October. Delagi, then president of the European Central Bank, said at the time that he would "reexamine" the extent of monetary policy easing at the conference on interest rates in December, because the euro area's economic growth and inflation prospects had downside risks.

However, Song Linju, a global macroeconomic analyst at China Merchants Securities, said that the implementation of QE2 is unlikely and not necessarily effective. "The ECB is currently facing the problem of" no debt to buy ". In August, it bought only 50 billion euros, far below the target of 60 billion euros.

In addition, the largest share of purchase is German debt, and Greece and other countries most in need of assistance are not eligible for the quota.

In Song Lin, it is easy to delay the end date of QE (September 2016). "Even if the European Central Bank really expands QE, it may only increase by about 15%."

At present, it seems more feasible than QE2 to "grade interest rate", or two level deposit interest rate.

According to foreign media reports, the ECB officials may implement the "graded interest rate" policy at this week's meeting, which is equivalent to fines for banks that hoard cash in excess of a certain amount.

Previously, because of the lack of willingness to lend, the majority of the money issued by the European Central Bank had been returned to the central bank account, unable to meet the goal of stimulating credit demand.