Morning from Europe

The PBoC has so far been tasked with solving the issues in China and why not try and cut rates a bit further when the demand for credit is non-existent. The 1-year MLF rate is now down 15bps to 2.5% and the 7-day repo is down 10bp to 1.8%.

It is never truly a comforting sign when rate cuts are used on a running basis to combat economic weakness and equities also struggle to catch a bid in China this morning. The continued cutting cycle (paired with the Fed hiking cycle) also leaves the CNY on a slippery slope. Short-term rate spreads suggest that we have 7.75-8.00 on the cards in USDCNY, which would lead to a very meaningful exporting of disinflation from China in case.

USDCNY trades closer to 7.28 this morning and a break above 7.30 would be noteworthy.

Chart 1: 7.75-8.00 on the cards in China?