[B]Surprising markets in the fresh New York morning, the People?s Bank of China widened the trading band by 50 basis points. Although the decision was widely expected for some time, it was the delivery of the announcement that threw currency markets a curveball initially. [/B]
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[B]China[/B][B] Expands Currency Band[/B]
[B]Surprising markets in the fresh New York morning, the People?s Bank of China widened the trading band by 50 basis points. Although the decision was widely expected for some time, it was the delivery of the announcement that threw currency markets a curveball initially. The final decision was reported ahead of this weekend?s G8 finance ministers meeting as well as the Strategic Economic Dialogue scheduled for next week when Vice Premier Wu Yi and other notable Chinese officials visit Washington. Incidentally, the announcement accompanied decisions to raise the 1-year lending rate by 18 basis points and the reserve requirement by 50 basis points. All bold moves, it is apparent that Chinese officials are hoping that the handful of policy adjustments will be enough to curb speculation and nascent signs of an overheating economy. The question now turns to whether or not Japan may do something for their currency which has come under heavier scrutiny recently. According to global trade partners, the Japanese yen is widely undervalued and may need some intervention by the Bank of Japan is stabilizing the exchange rate.[/B]
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[B]Rising Wages Help To Bolster Retail Sales Figures[/B]
[B]As the economy?s export and production sectors advance, wages are rising in line and helping to boost consumption in the world?s fastest growing economy. According to the most recent government report, retail sales accelerated at a 15.5 percent pace to 667.3 billion yuan after gaining 15.3 percent in the month prior. Visibly healthy, the survey?s increase was the biggest increase since 2004 and continues to lend to the notion of an overheating economy. Consumer sentiment boosted by not only economic healthy, but a skyrocketing stock market have been open to spending their income, rather than the usual protocol of saving. Incidentally, incentives are nowhere to be seen as current savings rates in the country continue to remain below the consumer level of inflation, supporting the search for higher returns through riskier assets. [/B]
[B]Strong Exports Boost Industrial Ouput[/B]
[B]Output in China vaulted higher by an impressive 17.4 percent n the month of April. For the second consecutive month the survey has printed an above 17 percent figure, likely contributing to an even more positive quarterly gross domestic product for the next three months. Attributed to the stronger than expected growth was a surge in exports. According to the most recent report, exports advanced by a 26.8 percent pace, helping overall production higher along with widening the country?s trade surplus. Incidentally, the report was one in a string of surveys released in the past two months, helping the decision to widen the currency?s trading band that much easier for central bankers.[/B]
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[B]Notable Figures Help To Boost Speculation Of FX Adjustment[/B]
[B]Speculation of this week?s trading band adjustment mounted on comments by two key figures in the financial markets. Although not attributed for the final outcome, weight was surely placed on statements from both Premier Wen Jiabao and Li Ka-Shing. Speaking in mid week action, and ahead of the finance ministers meeting this weekend, Premier Wen once again confirmed China?s commitment to working on a more flexible currency regime in order to subdue the effects of a widening trade surplus. The headline official additionally made note of efforts to work towards a more balanced trade flow, an answer to some rising concerns from global trade partners. The comments were shortly followed by the reflections of Asia?s richest man, Li Ka-Shing. Noting that stock valuations had climbed to extremes, Li stated that there “must be a bubble”, suggesting that prices will likely fall in the near term and that further controls will likely have to be put in place.[/B]