Swine Fever & Industrial Profit Decline Weakens Chinese Yuan

Swine Fever & Industrial Profit Decline Weakens Chinese Yuan
November 28, 2018

 

The Chinese Yuan weakened on Tuesday as news reports of African swine fever sent economic ripples throughout the agricultural sector of the nation. The bearish news did not end there, as industrial profits slowed in October and forecasts show that next year’s growth will cool. Trump’s statement also hit the Chinese currency after indications of the possibility of another round of tariff hike.

 

African swine fever, weak industrial profits and Trump’s statement affects the yuan

African swine fever has spread to 20 provinces and towns in China, including Beijing and Chongquing’s inland metropolis, threatening the world’s largest pork market.  Since August, swine fever has resulted in the killing of roughly one million pigs and the government has prohibited most of the 700 million swine from being shipped. This trend has disrupted stocks and shipments to large cities, which is awful news for the rural area of the nation.

Chinese pig farmers have already been fighting with increasing feed costs amid Beijing’s trade row with the US. Regardless of the US-China trade spat, farmers point out that they have hardly been able to break even with the current prices. However, if the outbreak escalates in the coming weeks, many farmers may be pushed into the red. The disease does not affect humans, but it is infectious among pigs.

Profits in China’s major industrial firms grew 13.6% year-on-year in the first ten months of 2018, down from the 14.7% expansion for the January-September period, the National Bureau of Statistics (NBS) said on Tuesday.  Industrial profits rose 3.6 percent in October from a year earlier to 548 billion yuan ($78.92 billion), a seven-month low and a decrease from September’s 4.1 percent gain, the NBS said on Tuesday.

Profit growth in Chinese industrial companies cooled for a sixth straight month in October, with factory prices and sales rates softening in the midst of uncertainties arising from the Chinese-US trade war. China and the US have slapped tariffs on billions of dollars each other’s goods, hurting production and shadowing global growth outlooks.

Some economists believe that profitability in the coming months will continue to deteriorate. Economists at Japan’s Nomura opined the downtrend would continue “given weakening domestic demand, already-high financing costs, rising credit defaults and the escalation in the China-US trade conflict.”

The private sector faces several obstacles as 2019 approaches. It was reported last week that China faces a wave of corporate defaults due to rising borrowing costs and a falling yuan. A new study by the University of Renmin suggests that Chinese economic growth is projected to reach 6.6% in 2018 and then slow to 6.3% in 2019. As expected, both trade spat and structural reforms are the leading causes of the steep growth.

Finally, US President Donald Trump’s statement signaling a likely tariff hike on Chinese merchandise worth hundreds of billions of dollars’ has raised concerns among investors across the world.

Referring to the remaining Chinese imports which so far have not been slapped with tariffs, Trump said “If we don’t make a deal, then I’m going to put the $267 billion additional on. The only deal would be China has to open up their country to competition from the United States.”

Swine fever, the decline in industrial profit, and Trump’s threat are expected to keep the yuan weak in the near-term future.

The USD/CNY currency pair rose about 0.18% to 6.9567, from an opening of 6.9408, on Tuesday.

cny - technical analysis - 28th November 2018

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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