ABN Amro quick off the mark with their assessment of what the very poor flash reading on the China Caixing manufacturing PMI means ...
(Give yourself a gold star if you've already guessed...):
Weak China data exacerbates risk off mode
- China manufacturing ... contraction accelerated in August
- exacerbated the current bearish sentiment in the commodities and currency markets
- Onshore yuan was sold off .... Offshore yuan discount to the onshore rate widened as risk sentiment deteriorated
- Both deliverable and non-deliverable forwards are now implying larger depreciation expectations in the yuan
- In our view, the forwards market are still under-estimating the magnitude of depreciation in the yuan by the end of this year. Our year end yuan forecast against the US dollar is 6.55.
More monetary stimulus expected
- The People's Bank of China's intervention activities in the currency market to defend the yuan has drained onshore liquidity and pushed up short term rates
- Our view that the PBoC is likely to lower the benchmark rates by 25bp and the reserve requirement ratio by 50-100bps may come sooner than later after this morning's data.
Bolding mine
