The Chinese PMIs indicate easing Trend in Trade: China’s NBS manufacturing PMI eased in April, declining to 51.2 from 51.8 in March, which was the highest reading since April 2012. Easing was broad-based across the major components, including output, new orders, new export orders, and employment, while input prices declined further. Meanwhile, the Caixin manufacturing PMI marked a similar trend, easing to 50.3 in April, from 51.2 in March.

While China's trade surplus fell to USD 38.5 billion in April of 2017 from USD 39.16 billion surpluses a year earlier but above market consensus of a USD 35.50 billion surpluses, as exports rose less than imports. Year-on-year, sales grew by 8.0 pct to USD 180 billion, slowing from a 16.4 percent rise in the prior month while market expected a 10.4 pct gain.

Tightening Chinese interbank rates reinforce the soft-landing story.

A steeply upward sloping CNH vol curve in the 3M-1Y segment motivates forward vol selling at a substantial premium to spot ATM vol. The steepness of the vol curve is substantial for the level of base vols (refer above chart) and worth milking via +2M/-9M gamma-neutral calendar spreads in the absence of a liquid forward volatility (FVA) product market.

The flatness of the CNH vol term structure beyond the 1Y point also motivates carry-earning calendar spreads, preferably in the direction of slow-burn currency weakness that is the baseline outcome in the minds of many investors.

For pure vol investors, delta-hedged -9M straddle vs. +18M 25d strangle calendars can exploit this flatness while alongside the cheapness of CNH flies (even adjusted for ATM vol levels) that increase the appeal of short straddle/long strangle packages.

For directional investors not given to frequent delta-hedging, we propose -9M 7.05 vs. +18M 7.15 USD call/CNH put calendars that accrues positively to the over the life of the short leg while awaiting a renewal of RMB weakness, possibly after the November plenum.

Long 3M EURCNH 25D risk-reversal, delta-hedged.

Buy an eq-weighted basket of EURSGD puts, EURCNH puts and EURINR puts, 2M 5% OTMS strikes, vs. sell 2M 5% OTMS EURAUD puts.