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The latest data continue to suggest weakened growth momentum and the growth outlook. Continued policy easing is anticipated to bolster the slowdown amid accelerating capital outflows and CNY depreciation pressures.
Barclays recommends the following actions in order to accelerate the growth momentum:
- USDCNY is seemed to moving to 6.80 by year-end. While there are downside risks to their USDCNY forecast, they hold long a USDCNH call spread and long USDCNH 6m forward recommendation as markets are not sufficiently pricing in the prospects of a sharper weakening of the CNY. Slower growth, capital outflows, a CNY that is 5-10% expensive, and rising global uncertainty would steer China away from pegging to the rising dollar. This happening in reaction to a stronger USD environment as well as the need to stabilise outflows.
- Look to pay 1y CNH CCS, as RMB weakness is likely to drive forward points higher and reduce the attractiveness of CNH-denominated assets. In NDIRS, weak GDP growth and further easing by the PBoC should keep rates well-anchored. Nevertheless, we stay on the sidelines and wait for better levels, with the curve fairly reflecting these dynamics.
