China’s private Caixin composite PMI was at 52.9 in November, unchanged from last reading. Drilling into the details, the services PMI picked up by 0.9pt to 53.1 in November, while the manufacturing PMI dipped by 0.3pt to 50.9. As suggested by Caixin PMI, the overall growth momentum has been improving since Q4 2015.

Notably, recent policy tightening suggests that Chinese authorities are confident to deliver a growth above the 6.5% target for the whole year, and the policy orientation turns to “risk control” as the growth has stabilized. In our view, this makes sense as China needs to strike a balance between growth, debt, and economic rebalancing.

Trade recommendations:

USD/CNY rise in a year, an 8.4% rise in EUR/CNY and a 23% fall in CNY/JPY. Further depreciation is likely in the months to come, hence, it is already recommended to buy either 6M USDCNY forwards of January expiries or deploy debit call spreads eyeing on above mentioned forecasts of USDCNY.

In vol space, seagull structures are still the way to go in our opinion. Dollar calls, call spreads, or one-touches are all quite expensive but still worth staying hedged.