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Chinese Yuan Weakens As Industrial Profits Soar

April 29, 2019 at 18:13 by Andrew Moran

Three CNY100 bills of 2005The Chinese yuan traded broadly to kick off the trading week as the world’s second-largest economy finally received some positive economic news after more than a year of downbeat data and sentiment. Is China on the cusp of turning it around and kickstarting the economy?

In March, China’s industrial companies recorded their biggest profits in eight months. According to the National Bureau of Statistics, industrial profits climbed by 13.9% year on year last month to $87.5 billion, the biggest jump since July. This comes as industrial profits contracted for four consecutive months.

Profits were driven primarily from growth in production, prices, and sales. Industrial firms were also found to be more efficient at every stage of the manufacturing process.

The positive development suggests two things. The first is that the market is hopeful that a new US-China trade agreement is on the horizon. The second is that the stellar data might also be responding to the federal government’s stimulus efforts – a combination of across-the-board tax cuts, public works spending, and accommodative monetary policy.

Analysts are now anticipating that the country’s factory activity likely expanded, though at a modest pace. This would be the second straight month of improving business conditions.

In other domestic data, chicken prices soared again in April, primarily because of a supply shortage that has rocked the market. The country has been reeling from a bird flu outbreak, but Beijing has prohibited chicken imports from the US and France to boost inventories. This has resulted in consumers switching to pork, but prices are higher as well because of the African swine fever that has caused a massive slaughter of pig supplies.

This week, Treasury Secretary Steven Mnuchin will travel to Beijing for what he says are the “final laps” in the US-China trade negotiations. He conceded the two sides are closer to an agreement, but noting that additional work needs to be done.

The USD/CNY currency pair rose 0.06% to 6.7337, from an opening of 6.7297, at 17:24 GMT on Monday. The EUR/CNY surged 0.33% to 7.5279, from an opening of 7.5033.

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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