Societe Generale notes that stronger-than-expected China PMI data suggest slow but steady growth, reducing urgency for the PBoC to ease policy. The bank highlights that USD/CNY has fallen back below its 50-day moving average as Yuan strength reflects robust exports supported by the global AI boom. The report also points to a higher trade-weighted CEFTS RMB Index and firmer 10y CGB yields.

Yuan strength backed by exports

"China PMI signals slow growth but less urgency for the PBoC to ease: official manufacturing PMI rose more than expected to 50.3 in June from 50.0 while non-manufacturing PMI surprisingly rose to 50.2 from 50.1."

"The yuan bulls are firmly in control with USD/CNY back below 6.7938 (50dma) following US NFP miss yesterday. The private RatingDog manufacturing PMI expanded for a seventh straight month in June."

"The yuan's rise in 1H26 reflects robust exports that was partly powered by the global AI boom. EU's trade chief Maros Sefcovic and China's commerce minister Wang Wentao held discussions in Brussels aimed at resolving trade issues. The trade-weighted CEFTS RMB Index climbed to the highest level since July 2022."

"Domestically the spotlight will shift to the Politburo meeting later this month. The NDRC has tightened oversight of fundraising, urging banks to avoid underwriting high-yield yuan and USD bonds. "

"The goal is to cut down on higher cost borrowing and excessive debt financing, particularly among the local government financial vehicles. The 10y CGB yield rose 3bp this week to 1.75%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)