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China’s deflationary spiral bumps up FX risk aversion

China’s NBS Manufacturing and Non-Manufacturing PMIs for May have increased the risk of a deflationary spiral in China. A weaker Chinese yuan may be…



  • China’s NBS Manufacturing and Non-Manufacturing PMIs for May have increased the risk of a deflationary spiral in China.
  • A weaker Chinese yuan may be required to counter and smooth the adverse effects of the deflationary spiral at least in the short-term.
  • Risk aversion has resurfaced in the FX market via weakness seen in the G-10 JPY crosses.

In stark contrast to the recent findings of China’s manufacturing sector survey done by China Beige Book, a US-based data provider that has indicated a rebound in manufacturing activities in May from April, the latest data released today on the official NBS Manufacturing PMI as well as the Non-Manufacturing PMI have showed another month of contraction and growth slowdown in May.

The second consecutive month of weak manufacturing and services activities in China

Fig 1:  NBS Manufacturing PMI for May 2023 (Source: MacroMicro, click to enlarge chart)

Fig 2:  NBS Non-Manufacturing PMI for May 2023 (Source: MacroMicro, click to enlarge chart)

Headline manufacturing activities (PMI) contracted further to a five-month low at 48.8 in May from 49.2 in April; two consecutive months of contraction and came in below consensus estimates of 49.4. Key sub-components of NBS Manufacturing PMI such as new orders (48.3 vs 48.8), new export orders (47.2 vs. 47.6), and purchasing volume (49.0 vs. 49.1) have shrunk at a faster rate too. In addition, the production output sub-component contracted for the first time in four months to 49.6 in May from April’s 50.2.

Services activities (Non-Manufacturing PMI) also further cooled down to 54.5 in May from April’s 56.4, its second consecutive month of growth slowdown and its softest pace since January.

Weak demand conditions plus declining input and output prices increase deflationary risk

The latest reading from China’s PMI data for May has further reinforced an increasing slowdown in external demand (global growth) and lacklustre internal domestic demand ex-post re-opening from Covid-19 stringent lockdowns.

A closer inspection of the input and output prices sub-components for both the PMIs has indicated a risk of a deflationary spiral at play. The input cost (main raw material purchase price) sub-component of the Manufacturing PMI declined at the fastest pace in May since July 2022 (40.8 vs. 46.4) while the output cost (producer prices) sub-component fell for the third consecutive and recorded its steepest decline for ten months in May to 41.6 from 44.9.

Also, the input price sub-component of the Non-Manufacturing PMI contracted for the first time in five months to 47.4 in May from 51.1 coupled with a downside reversal in the sales price sub-component that slipped back to a contraction mode of 47.60 in May from a prior rise of 50.3 in April.

All in all, these weak input and output prices surveyed from the manufacturing and services sector in China are likely to cause a further dampening in the upcoming May reading for consumer inflation and factory gate prices (PPI) that are scheduled to release next Friday, 9 June. April’s reading of 0.1% year-on-year for consumer inflation and -3.6% year-on-year for PPI were the weakest inflationary data for China within the G-20 nations.

China policymakers may need a weaker yuan to stabilize internal growth

Given China’s central bank, PBoC current accommodative monetary policy stance is to adopt a targeted and “wait and see” approach rather than “opening the liquidity floodgates”, the foreign exchange rate may be used as a tool in the short term to alleviate the current downturn.

As highlighted above on the risk of the deflationary spiral in China, a weaker yuan at this juncture is unlikely to trigger a significant spike in imported inflation, and on the contrary, it may help to improve export numbers in the short term.

Hence, Chinese authorities and PBoC seems to be willing to accept a weaker yuan in the past two weeks and allow market forces to dictate its move. Yesterday’s onshore USD/CNY mid-point fixing rate was set at 7.0818, the weakest for the CNY seen in six months and today’s (31 May) fixing was set slightly higher at 7.0821.

This latest “implied weak onshore CNY guidance” from PBoC has further reinforced weakness in the offshore CNH. As seen from a technical analysis perspective, the bullish momentum of the medium-term uptrend phase of the USD/CNH in place since 16 January 2023 remains intact. The key medium-term resistance zone to watch will be at 7.1445/7.1730.

Fig 3:  USD/CNH trend as of 31 May 2023 (Source: TradingView, click to enlarge chart)

Implications of a weaker yuan

The continuation of weaknesses and underperformance of China equities and its proxies. At this time of writing, the CSI 300, Hong Kong’s Hang Seng Index, Hang Seng Technology Index, and Hang Seng China Enterprises Index have shed between -1.2% to -3.00% intraday. China’s export-dependent Asia ex-Japan markets such as Singapore and Australia equities may also face renewed downside prices in the short to medium term. Click here to read our previous analysis, “Yuan weakness spooks China and Asia ex-Japan stock markets”.

Risk aversion has also crept into the FX market

Fig 4:  G-10 JPY crosses trend as of 31 May 2023 (Source: TradingView, click to enlarge chart)

Thus, if a weaker yuan continues to play out and the tentative US debt ceiling extension deal vote that is being scheduled later today in the House hits a roadblock, these JPY crosses may see further weakness at least in the short term.

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Saudi Arabia Sentences Schoolgirl To 18 Years In Prison Over Tweets

Saudi Arabia Sentences Schoolgirl To 18 Years In Prison Over Tweets

Via Middle East Eye,

Saudi Arabia has sentenced a secondary schoolgirl…



Saudi Arabia Sentences Schoolgirl To 18 Years In Prison Over Tweets

Via Middle East Eye,

Saudi Arabia has sentenced a secondary schoolgirl to 18 years in jail and a travel ban for posting tweets in support of political prisoners, according to a rights group.

On Friday, ALQST rights group, which documents human rights abuses in Saudi Arabia, revealed that the Saudi Specialised Criminal Court handed out the sentence in August to 18-year-old Manal al-Gafiri, who was only 17 at the time of her arrest.

Via Reuters

The Saudi judiciary, under the de facto rule of Crown Prince Mohammed bin Salman, has issued several extreme prison sentences over cyber activism and the use of social media for criticising the government.

They include the recent death penalty against Mohammed al-Ghamdi, a retired teacher, for comments made on Twitter and YouTube, and the 34-year sentence of Leeds University doctoral candidate Salma al-Shehab over tweets last year.

The crown prince confirmed Ghamdi's sentence during a wide-ranging interview with Fox News on Wednesday. He blamed it on "bad laws" that he cannot change

"We are not happy with that. We are ashamed of that. But [under] the jury system, you have to follow the laws, and I cannot tell a judge [to] do that and ignore the law, because... that's against the rule of law," he said.

Saudi human rights defenders and lawyers, however, disputed Mohammed bin Salman's allegations and said the crackdown on social media users is correlated with his ascent to power and the introduction of new judicial bodies that have since overseen a crackdown on his critics. 

"He is able, with one word or the stroke of a pen, in seconds, to change the laws if he wants," Taha al-Hajji, a Saudi lawyer and legal consultant with the European Saudi Organisation for Human Rights, told Middle East Eye this week.

According to Joey Shea, Saudi Arabia researcher at Human Rights Watch, Ghamdi was sentenced under a counterterrorism law passed in 2017, shortly after Mohammed bin Salman became crown prince. The law has been criticised for its broad definition of terrorism.

Similarly, two new bodies - the Presidency of State Security and the Public Prosecution Office - were established by royal decrees in the same year.

Rights groups have said that the 2017 overhaul of the kingdom's security apparatus has significantly enabled the repression of Saudi opposition voices, including those of women rights defenders and opposition activists. 

"These violations are new under MBS, and it's ridiculous that he is blaming this on the prosecution when he and senior Saudi authorities wield so much power over the prosecution services and the political apparatus more broadly," Shea said, using a common term for the prince.

Tyler Durden Sun, 09/24/2023 - 11:30

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Biden To Join UAW Picket Line As Strike Expands, Good Luck Getting Repairs

Biden To Join UAW Picket Line As Strike Expands, Good Luck Getting Repairs

Authored by Mike Shedlock via,

In a symbolic, photo-op…



Biden To Join UAW Picket Line As Strike Expands, Good Luck Getting Repairs

Authored by Mike Shedlock via,

In a symbolic, photo-op gesture to win union votes, Biden will head to Michigan for a token visit.

Biden to Walk the Picket Line

Taking Sides

CNN had some Interesting comments on Biden Talking Sides.

Jeremi Suri, a presidential historian and professor at University of Texas at Austin, said he doesn’t believe any president has ever visited a picket line during a strike.

Presidents, including Biden, have previously declined to wade into union disputes to avoid the perception of taking sides on issues where the negotiating parties are often engaged in litigation.

On September 15, the day the strike started, Biden said that the automakers “should go further to ensure record corporate profits mean record contracts for the UAW.”

Some Democratic politicians have been urging Biden to do more. California Rep. Ro Khanna on Monday told CNN’s Vanessa Yurkevich that Biden and other Democrats should join him on the picket line.

“I’d love to see the president out here,” he said, arguing the Democratic Party needs to demonstrate it’s “the party of the working class.”

UAW Announces New Strike Locations

As the strike enters a second week, UAW Announces New Strike Locations

UAW President Shawn Fain called for union members to strike at noon ET Friday at 38 General Motors and Stellantis facilities across 20 states. He said the strike call covers all of GM and Stellantis’ parts distribution facilities.

The strike call notably excludes Ford, the third member of Detroit’s Big Three, suggesting the UAW is more satisfied with the progress it has made on a new contract with that company.

General Motors plants being told to strike are in Pontiac, Belleville, Ypsilanti, Burton, Swartz Creek and Lansing, Michigan; West Chester, Ohio; Aurora, Colorado; Hudson, Wisconsin; Bolingbrook, Illinois; Reno, Nevada; Rancho Cucamonga, California; Roanoke, Texas; Martinsburg, West Virginia; Brandon, Mississippi; Charlotte, North Carolina; Memphis, Tennessee; and Lang Horne, Pennsylvania.

The Stellantis facilities going on strike are in Marysville, Center Line, Warren, Auburn Hills, Romulus and Streetsboro, Michigan; Milwaukee, Wisconsin; Plymouth, Minnesota; Commerce City, Colorado; Naperville, Illinois; Ontario, California; Beaverton, Oregon; Morrow, Georgia; Winchester, Virginia; Carrollton, Texas; Tappan, New York; and Mansfield, Massachusetts.

Contract Negotiations Are Not Close

Good Luck Getting Repairs

Party of the Working Cass, Really?

Let’s discuss the nonsensical notion that Democrats are the party of the “working class”.

Unnecessary stimulus, reckless expansion of social services, student debt cancellation, eviction moratoriums, earned income credits, immigration policy, and forcing higher prices for all, to benefit the few, are geared towards the “unworking class”.

On top of it, Biden wants to take away your gas stove, end charter schools to protect incompetent union teachers, and force you into an EV that you do not want and for which infrastructure is not in place.

All of this increases inflation across the board as do sanctions and clean energy madness.

Exploring the Working Class Idea

If you don’t work and have no income, Biden may make your healthcare cheaper. If you do work, he seeks to take your healthcare options away.

If you want to pay higher prices for cars, give up your gas stove, be forced into an EV, subsidize wind energy then pay more for electricity on top of it, you have a clear choice. If you support those efforts, by all means, please join him on the picket line for a token photo-op (not that you will be able to get within miles for the staged charade).

But if you can think at all, you understand Biden does not support the working class, he supports the unworking class.

Tyler Durden Sun, 09/24/2023 - 10:30

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UK Quietly Passes “Online Safety Bill” Into Law

UK Quietly Passes "Online Safety Bill" Into Law

Authored by Kit Knightly via,

Buried behind the Brand-related headlines…



UK Quietly Passes "Online Safety Bill" Into Law

Authored by Kit Knightly via,

Buried behind the Brand-related headlines yesterday, the British House of Lords voted to pass the controversial “Online Safety Bill” into law. All that’s needed now is Royal assent, which Charles will obviously provide.

The bill’s (very catchy) long-form title is…

A Bill to make provision for and in connection with the regulation by OFCOM of certain internet services; for and in connection with communications offences; and for connected purposes.

…and that’s essentially it, it hands the duty of “regulating” certain online content to the UK’s Office of Communications (OfCom).

Ofcom Chief Executive Dame Melanie Dawes could barely contain her excitement in a statement to the press:

“Today is a major milestone in the mission to create a safer life online for children and adults in the UK. Everyone at Ofcom feels privileged to be entrusted with this important role, and we’re ready to start implementing these new laws.”

As always with these things, the bill’s text is a challenging and rather dull read, deliberately obscure in its language and difficult to navigate.

Of some note is the “information offenses” clause, which empowers OfCom to demand “information” from users, companies and employees, and makes it a crime to withhold it. The nature of this “information” is never specified, nor does it appear to be qualified. Meaning it could be anything, and will most likely be used to get private account information about users from social media platforms.

In one of the more worrying clauses, the Bill outlines what they call “communications offenses”. Section 10 details crimes of transmitting “Harmful, false and threatening communications”.

It should be noted that sending threats is already illegal in the UK, so the only new ground covered here is “harmful” and/or “false” information, and the fact they feel the need to differentiate between those two things should worry you.

After all, the truth can definitely be “harmful”…Especially to a power-hungry elite barely controlling an angry populace through dishonest propaganda.

Rather amusingly, the bill makes it a crime to “send a message” containing false information in clause 156…then immediately grants immunity to every newspaper, television channel and streaming service in clause 157.

Apparently it’s OK for the mainstream media to be harmful and dishonest.

But the primary purpose of the new law is a transfer of responsibility to enable and incentivize censorship.

Search engines (“regulated search services”, to quote the bill) and social media companies (“regulated user-to-user services”) will now be held accountable for how people use their platform.

For example: If I were to google “Is it safe to drink bleach?”, find some website that says yes, and then drink bleach, OfCom would not hold me responsible. They would hold Google responsible for letting me read that website. Likewise, if someone tweets @ me telling me to drink bleach, and I do so, Twitter would be held responsible for permitting that communication to take place.

This could result in hefty fines, or even potentially criminal charges, to companies and/or executives of those companies. It could even open them up to massively expensive civil suits (don’t be surprised if such a legal drama hits the headlines soon).

Unsurprisingly the mainstream coverage of the new laws barely mentions any of these concerns, instead opting to put child pornography front and centre. Because the Mrs Lovejoy argument always works.

That’s all window dressing, of course, what this is really about is “misinformation” and “hate speech”. Which is to say, fact-checking mainstream lies and calling out mainstream liars.

Section 7(135) is entirely dedicated to the creation of a new “Advisory committee on disinformation and misinformation”, which will be expected to submit regular reports to OfCom and the Secretary of State on how best to “counter misinformation on regulated services“.

This is clearly a response to Covid, or rather the failure of Covid.

Essentially, the pandemic narrative broke because the current mechanisms of censorship didn’t work well enough. In response, the government has just legalised and out-sourced their silencing of dissent.

See, the government isn’t going to actually censor anyone themselves, protecting it from pro-free speech criticism. Rather, huge financial pressure will be applied on tech giants to be “responsible” and “protect the vulnerable”. Meaning de-platforming and cancelling independent media via increasingly opaque “terms of service violations”

These companies will be cheered on by the vast crowd of jabbed-and-masked NPCs who have been so successfully brainwashed into believing the “they are a private company and can do that they want” argument.

This has been going on for years already, of course, but that was covert stuff. Now it’s legal in the UK, and is about to get a lot worse.

It won’t be just the UK either, considering the messaging on “misinformation” being seen at the UN in the last few days, we should expect something similar on a global scale.

You can read the full text of the Online Safety Bill here.

Tyler Durden Sun, 09/24/2023 - 08:10

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