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Chinese Housing Market Continues its Ascent

Daily Analysis - 19/12/2016

Household Borrowing Fuels Additional Gains in Housing

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Although the government is working to contain a potential bubble in housing, the latest available data on prices shows that they continue to rise, climbing by the fastest pace since data was first recorded as Chinese households increase their borrowing to fund property purchases.

Chinese Home Prices Surge Higher


Data compiled by the National Bureau of Statistics of China showed that housing prices rose by the fastest pace on record, accelerating 12.60% year over year.  The index of 70 major cities has risen for 14-straight months, raising speculation that the higher momentum is unsustainable.  To control the gains to a degree and prevent overheating, the government has implemented certain property curbs designed to avoid a bubble and put the brakes on meteoric growth.  The result of these activities has seen monthly price growth dip modestly from 1.10% to 0.60% in a sign that efforts to cool the market are starting to take hold.  After reaching a brand new multi-year high, USDCNH is back on the retreat following dollar profit-taking as the Yuan retraces half of the previous session’s losses.

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Japanese Trade Figures Show Further Improvement


On the heels of the rapid fall in the Yen which has seen the currency plunge more than -17.00% versus the US dollar after the US election results, trade fundamentals are rapidly improving in the region.  Despite the trade balance continuing to narrow, falling to JPY 153 billion from JPY 496 billion a month prior, both the ongoing import and export contractions are beginning to ebb.  Exports continued to slide, falling by -0.40% on an annualized basis through the end of November, beating expectations of -2.00%.  However, despite declining for 14-straight months, it marks the best reading since October of 2015 in a sign that conditions are rapidly turning around.  Imports also beat expectations, only tumbling by -8.80% over the same period compared to -16.50% a month prior.  After briefly falling below 117.000, USDJPY has pulled back to the upside, trending near 117.350.

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Dollar Falls on Profit Taking


Following the meteoric rise to 14-year highs since the ascent of Donald Trump to the position of President-elect, the higher momentum in the US dollar has been relatively unrestrained until profit-taking began during the weekly reopening.  Although the Federal Reserve decision and upgraded outlook for normalization have spurred greater optimism in the US currency, there are still many risks that could adjust the outlook.  The looming question that remains is whether the proposed spending packages and tax reform will be rubber stamped by the new Republican-dominated congress or watered down.  In the meantime, the US dollar is continuing to pull back from multi-year highs versus the Euro, with EURUSD continuing Friday’s momentum higher.  The move has relieved some pressure on gold prices, which have managed to retake $1140.00 per troy ounce after falling as low as $1122.78 on Thursday.

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Supply Tightening Speculation Sends Oil Higher


Despite a multitude of lingering concerns regarding absolute participation and respect of the OPEC and non-OPEC deal to cut oil output, oil prices are rising once more on the back of expectations that supply excesses will gradually shrink throughout 2017.  Between the cartel and other major global oil producers, the general idea is to cut approximately 1.800 million barrels per day in output.  However, rapidly resurgent production in the United States and other major producers threatens to disrupt these cuts.  Besides the potential for an additional 500,000 barrels per day in Nigerian and Libyan production, US production continues to surge higher in a sign that shale production is rapidly recovering after faltering during the period of weaker prices.  After briefly falling below $50.00 per barrel on Thursday, WTI prices are higher since the reopening, trending firmly above $52.00 per barrel.

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