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China June data to show weak trade, more drop in FX reserves

A flurry of information from China in coming weeks is anticipated to show continued weak point in trade and investment, slow industrial output and another drop in foreign reserves, reinforcing views that Beijing will present more financial support measures quickly.

Weak factory studies and increased economic unpredictability following Britain's vote to leave the European Union have added to views that authorities will ramp up fiscal stimulus and ease monetary policy by cutting rate of interest and banks' reserve requirements in coming months.

Reuters reported on Thursday that the People's Bank of China (PBOC) also would tolerate a fall in the yuan to as low as 6.8 per dollar in 2016 to support the economy, if it did not activate a reaction from significant trading partners.

Economists polled by Reuters expected June exports fell 4.1 percent, the very same rate as in May, while imports likely dropped 5 percent, restoring their decline after just a marginal drop in May raised hopes that domestic demand was restoring. China's trade surplus is forecast to hit $46.6 billion in June, from around $50 billion in May.

The consumer inflation rate may have dipped somewhat to 1.8 percent in June, which would be a five-month low, while producer deflation may reveal more signs of moderating, relieving pressures on business' revenue margins. Factory-gate costs are anticipated to have actually decreased 2.5 percent, which would be the slowest decrease since October 2014.

Loan and money supply data may likewise reveal indications of moderating. After record financing by Chinese banks in the first quarter, policymakers appear to have put the break on credit as it ended up being clear it was not translating into faster economic growth, while adding to currently elevated debt levels.

Banks most likely extended 1 trillion yuan ($150 billion) in brand-new loans in June, up slightly from May, the surveys showed.

Based on the June quote, overall new loans in the very first half of 2016 were less than 10 percent more than the year-ago period, and would put loan development somewhat off the record pace seen in China's massive stimulus throughout the 2009 crisis.

Development in M2 money supply may have fallen to a 13-month low in June, in line with current calls from the federal government to decrease leverage. Forex reserves likely dropped $20 billion to $3.17 trillion, after falling in May to their lowest since December 2011.

After supporting early this year, China's forex reserves have actually begun declining again amidst renewed pressure on the yuan, which tumbled 3.1 percent against the dollar in the second quarter, the most significant quarterly devaluation since China established the domestic forex market in 1994. Forex reserves data are anticipated to be launched later on this week, with trade, inflation and loan determine next week.

 

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