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Chinese Yuan Flat on Final Day of 2018

December 31, 2018 at 18:37 by Andrew Moran

Three CNY100 bills of 2005The Chinese yuan is closing 2018 flat against its American counterpart as investors brace for a new year. Experts contend that the yuan should have a better 2019, but only if the world’s two largest economies find a balance on trade. For now, the economic data is grim and pessimism reigns supreme.

In December, China’s economy did not show any signs of improvement. Manufacturing sector activity contracted for the first time since July 2016 as the purchasing managers’ index (PMI) slumped from 50.0 in November to 49.4 last month, according to the National Bureau of Statistics (NBS). This surprised analysts because the median forecast predicted an unchanged reading.

The non-manufacturing December PMI clocked in at 53.8, up from 53.4 in the previous month.

Moreover, there was a decline in export orders for the seventh consecutive month. New export orders fell to 46.6 in December, the lowest level since November 15.

The manufacturing sector has come under pressure in recent months because output growth is at the slowest pace in a decade and factory inflation is decelerating.

Last month, industrial profits declined 1.8%, down from a jump of 3.6% in October. This brought January-to-November profits to an increase of 11.8%, down from 13.6% in the January-to-October period. This was driven by slower growth in producer prices, sales, and rising costs.

Export demand weakened with growth dipping to just 5.4% in November. In September and October, there was admirable year-over-year export growth of 14.4% and 15.6%, respectfully.

Overall business confidence remains low, even in the middle of the 90-day trade truce between Washington and Beijing. The Standard Chartered business confidence index among small- and medium-sized enterprises (SMEs) was unchanged at 54.7 in December.

Credit conditions are still strong, which is mostly due to the government’s willingness to spur growth. In recent months, the federal government has been encouraging the major banks to lend out to the private sector in the hopes of stimulating economic activity.

The USD/CNY currency pair was flat at 6.8785 at 17:21 GMT on Monday. The EUR/CNY rose 0.07% to 7.8755, from an opening of 7.8697.

If you have any questions, comments or opinions regarding the Chinese Yuan, feel free to post them using the commentary form below.

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