Group 1 - The potential interest rate cut by the Federal Reserve in September 2025 is a key external factor influencing the Chinese economy, with a 92% probability of a rate cut reflected in the U.S. interest rate futures market [1] - The U.S. labor market shows signs of weakness, with a 0.8 percentage point decline in GDP growth from the first to the second quarter, and the core PCE price index year-on-year growth falling to 2.3%, creating room for the Fed to ease monetary policy [1] Group 2 - The narrowing of the China-U.S. 10-year government bond yield spread from 2.1 percentage points in 2023 to 0.3 percentage points is a significant positive development, potentially allowing for a 150 basis point reduction in China's reserve requirement ratio [3] - The aviation and real estate sectors are expected to benefit first, with the former holding $38.7 billion in dollar-denominated debt and the latter having approximately $52.6 billion in outstanding dollar debt, alleviating financial cost pressures from exchange rate fluctuations [3] Group 3 - Over the past 12 months, northbound capital has net flowed into the A-share market by 243 billion yuan, with the consumer electronics, new energy vehicles, and high-end equipment manufacturing sectors accounting for 62% of this inflow [3] - In the MSCI China index, stocks with foreign ownership exceeding 5% have an average valuation below the central value of the past five years by 23%, indicating potential for value reassessment during the Fed's rate cut cycle [3] Group 4 - The CFETS RMB exchange rate index, if it rises to the 101-103 range, could reduce the average procurement cost of basic imported goods by 6.3%, significantly impacting strategic materials like iron ore and crude oil [4] - The apparel and textile sectors may face pressure, with a 1% appreciation in the RMB potentially eroding profit margins by 4.7%, affecting over 120,000 export enterprises [4] Group 5 - The manufacturing PMI has remained above the threshold for four consecutive months, with the new export orders index rising to 51.6, indicating effective structural adjustments [4] - The recent 9.2% increase in the global commodity price index may offset some benefits from alleviating input deflationary pressures [4]

Core Viewpoint - The offshore RMB has strengthened against the USD, breaking the 7.1 mark for the first time since November 7, 2024, indicating a potential long-term appreciation trend for the RMB [1][3]. Exchange Rate Trends - On September 17, the offshore RMB reached a high of 7.0964 against the USD, while the onshore RMB closed at 7.1163, marking a 65 basis point increase from the previous trading day, the highest since November 6 of last year [1][2]. - The RMB has experienced two rounds of appreciation since the implementation of "reciprocal tariffs" by the US in April, with the first round starting on May 10 and the second round from late August to the present [1]. Factors Driving Appreciation - The recent rapid appreciation of the RMB is attributed to multiple factors, including expectations of interest rate cuts by the Federal Reserve and rising domestic asset values [3]. - The strengthening of the RMB is also influenced by a decline in the US dollar index due to signals from the Federal Reserve and improved domestic stock market performance, leading to increased foreign capital inflow [3]. - A growing global preference for Chinese equity assets has catalyzed the RMB's appreciation, with foreign capital net buying A-shares for the first time in months, enhancing the attractiveness of Chinese assets [3]. Long-term Outlook - Analysts predict that the RMB is entering a long-term appreciation cycle, with Deutsche Bank forecasting the exchange rate to reach 7.0 by the end of 2025 [4]. - The overall trend for the RMB exchange rate is expected to be characterized by "steady appreciation" and "two-way fluctuations" [3].

Core Viewpoint - The offshore RMB has appreciated against the USD, breaking the 7.1 mark for the first time since November 7, 2024, driven by multiple internal and external factors, indicating a potential return to a long-term appreciation trend for the RMB [1][5][7]. Group 1: Recent Exchange Rate Movements - On September 16, the onshore RMB closed at 7.1163 against the USD, marking a 65 basis point increase, the highest since November 6 of the previous year [2]. - The onshore RMB opened at 7.1100 on September 17, reflecting a 63-point increase from the previous day's close [2]. - Over the past 20 days, the onshore RMB has appreciated by 0.97%, while the offshore RMB has risen by 1.15% [3]. Group 2: Factors Driving Appreciation - The recent rapid appreciation of the RMB is attributed to a weaker USD index, strong domestic equity market performance, and favorable RMB middle rate expectations [1][5]. - The Federal Reserve's signals of potential interest rate cuts and the influx of foreign capital into China's stock market have contributed to the RMB's strength [5][6]. - The preference for Chinese equity assets among global investors has catalyzed the RMB's appreciation, with foreign capital re-entering the A-share market [5][6]. Group 3: Long-term Outlook - Analysts predict that the RMB is entering a long-term appreciation cycle, supported by improved capital flow dynamics and easing trade tensions [7][8]. - Deutsche Bank forecasts the RMB/USD exchange rate could reach 7.0 by the end of 2025, driven by favorable economic conditions and inflation expectations [7]. - The overall market sentiment has improved due to coordinated policy efforts, which are expected to bolster the RMB's stability and attractiveness [8].

Core Viewpoint - The recent appreciation of the Renminbi (RMB) against the US dollar, surpassing the 7.10 mark, reflects the market's response to diverging monetary policies between China and the US, showcasing the resilience of the Chinese economy and the effectiveness of policy adjustments [3][9]. Group 1: Factors Driving RMB Appreciation - The expectation of interest rate cuts by the Federal Reserve is a primary driver of short-term RMB appreciation, with a 93.4% probability of a 25 basis point cut in September [4]. - China's economic fundamentals show resilience, with a 34.52% year-on-year increase in trade surplus in August and a 165% year-on-year surge in new energy vehicle exports, enhancing the attractiveness of RMB assets [4][5]. - The People's Bank of China (PBOC) has signaled a "stronger" direction in its daily midpoint rate adjustments, which has positively influenced market sentiment and increased demand for currency conversion [5]. Group 2: Impact on Financial Markets - The RMB appreciation has led to a surge in foreign capital inflows, with over $2.2 billion net purchases of A-shares in August and a total of $10.1 billion in domestic stocks and funds held by foreign investors [6]. - The stock market has responded positively, with the Shanghai Composite Index rising by 7.97% in August, further attracting foreign investment and supporting the RMB's strength [6]. Group 3: Challenges for Export Enterprises - Export-oriented industries face structural adjustment pressures due to RMB appreciation, which may lead to exchange rate losses and decreased price competitiveness [7]. - Experts recommend that companies shift from price competition to technological barriers, enhancing product value to mitigate risks associated with exchange rate fluctuations [7]. Group 4: Future Outlook and Policy Recommendations - The current RMB strength is a result of multiple factors, but caution is advised regarding potential market overheating and the historical lack of a fixed pattern in RMB movements following Fed rate cuts [8]. - Strengthening policy coordination is essential for maintaining exchange rate stability, including measures to guide industrial upgrades and expand domestic demand [8]. - The ongoing international monetary system transformation presents opportunities for the RMB, with a notable decline in dollar dominance and an increase in RMB internationalization [8].

Group 1 - Deutsche Bank's Chief Economist for China predicts a strengthening of the RMB against the USD, forecasting an exchange rate of 7.0 by the end of 2025 and 6.7 by the end of 2026 [3][6] - The improvement in the RMB exchange rate is attributed to better-than-expected export performance and a decrease in the market's expectation of RMB depreciation, leading to increased foreign exchange inflows [5][6] - The People's Bank of China has renewed bilateral currency swap agreements with the European Central Bank, Swiss National Bank, and Hungarian National Bank, which will enhance bilateral trade and investment facilitation [7][8] Group 2 - The bilateral currency swap agreements include a scale of 350 billion RMB/45 billion Euros with the EU, 150 billion RMB/17 billion Swiss Francs with Switzerland, and 40 billion RMB/190 billion Hungarian Forints with Hungary, with varying effective periods [7] - The seasonal characteristics of exports and the strong demand for profit recovery at year-end are expected to drive a concentrated foreign exchange settlement by exporters in the fourth quarter [6] - The current low level of short positions against the offshore RMB provides room for further strengthening of the RMB exchange rate [6]

Core Viewpoint - The People's Bank of China announced an increase in the central parity rate of the RMB against the USD, indicating a potential trend towards RMB appreciation supported by various economic factors [1] Exchange Rate Summary - The central parity rate for the RMB against the USD was set at 7.1034, an increase of 28 basis points from the previous day's rate of 7.1062 [1] - As of 9:40 AM on the same day, the onshore RMB was trading at 7.1185, reflecting a daily appreciation of 0.03%, while the offshore RMB was at 7.1161, with a daily appreciation of 0.06% [1] Economic Factors Influencing RMB Appreciation - Key factors supporting RMB appreciation include the interest rate differential between China and the US, policy risk premium, and purchasing power parity, all moving in a favorable direction [1] - The central bank's middle rate and increased foreign investment in Chinese stocks are additional catalysts for RMB appreciation [1] Market Outlook - The weak USD environment is expected to continue supporting RMB appreciation; however, weak export expectations and the need for domestic demand recovery suggest that the pace of appreciation should remain steady [1]

Domestic Insights - The August PMI manufacturing price index increased, likely due to the upward shift in upstream commodity prices, which may hinder future corporate profit recovery[2] - The current domestic market is in a new bull market phase, with wealth effects expected to boost service consumption as a highlight for Q4 economic growth[2] - September is a critical observation window for RMB appreciation, especially if US-China negotiations show substantial progress[2] Overseas Insights - In August, non-farm payrolls added only 22,000 jobs, significantly below the expected 75,000, indicating a moderate slowdown in employment rather than a rapid decline[15] - The unemployment rate rose to 4.3% in August from 4.2% in July, reinforcing concerns about employment risks discussed at the Jackson Hole meeting[15] - The weak non-farm data suggests the Federal Reserve may lower interest rates by 75 basis points this year, with weak dollar trading likely to continue in the coming weeks[15] Liquidity and Market Trends - The overall liquidity tightened this week, with the benchmark interest rate down approximately 7.412 basis points[19] - The average daily transaction volume in the interbank pledged repo market increased by about 2417.16 billion CNY, reaching 73138.95 billion CNY[20] - Government bond issuance pressure decreased, with a net repayment of 1184.54 billion CNY and a planned issuance of 8376.7 billion CNY next week[21] Asset Performance - The Shanghai Composite Index fell by 1.18% this week, while the Shenzhen Component Index decreased by 0.83%[39] - Gold prices showed an upward trend, while international crude oil prices experienced a downward trend[37] - The US 10-year Treasury yield declined, reflecting a mixed performance in European bond yields[39]

Fixed Income Commentary - The recent decline in funding prices has not led to a decrease in certificate of deposit (CD) rates, resulting in a widening spread between the two. As of September 5, the R007 (20DMA) rate was 1.50%, down 15 basis points from the end of Q2, while the 1-year AAA CD rate rose slightly to 1.665%, an increase of 3.5 basis points from the end of Q2. The spread between the 1-year CD and R007 has expanded significantly to 16.4 basis points, compared to a June average of 4.9 basis points, indicating a high level not seen in nearly two years [1][8][9]. Currency and Foreign Capital Flow - During the period of anticipated RMB depreciation, a high forward exchange rate premium attracted foreign capital inflow, leading to significant accumulation of CDs. From September 2023 to August 2024, the RMB is expected to face depreciation pressure, with the forward exchange rate premium remaining high at around 3%-4%. Foreign investors have been purchasing domestic 1-year CDs and locking in forward exchange rates, achieving a combined yield of 5%-7%, which is higher than the yield on 1-year US Treasury bonds. The difference between the forward exchange rate premium and the 1-year AAA CD yield compared to the 1-year US Treasury yield has remained positive, mostly around 1 percentage point [2][11][13]. Impact of RMB Appreciation - As the RMB shifts from depreciation pressure to appreciation pressure, the forward premium has decreased, leading to capital outflows from the bond market, particularly in CDs. Since May, the RMB has appreciated against the USD, with the 1-year forward exchange rate premium dropping to around 2%. This decline means that even with investments in domestic bonds, the overall yield is approximately 4%, comparable to the yield on 1-year US Treasury bonds. From May to July, foreign investors reduced their holdings in domestic bonds by 515.5 billion RMB, with 313.8 billion RMB attributed to CDs [3][16][21]. Foreign Capital Reduction and CD Rates - The reduction in foreign holdings of CDs has contributed to the slower decline in CD rates, resulting in a widening spread between CDs and funding rates. From April to July, foreign investors reduced their monthly holdings of CDs by an average of 104.6 billion RMB. Given that the average net financing for CDs this year has only been 1.885 billion RMB per month, the reduction in foreign holdings has had a notable impact on CD rates, potentially leading to a slower decline in rates during periods of falling funding prices [17][22].

Core Viewpoint - Deutsche Bank's report indicates that the recent strengthening of the Renminbi (RMB) against the US dollar may signal the beginning of a long-term appreciation cycle for the currency [1][2] Group 1: Economic Indicators - The RMB's exchange rate is expected to improve due to a reduction in trade tensions, despite the increase in US tariffs on Chinese goods [1] - China's export performance has exceeded expectations, with growth in non-US regions effectively offsetting the decline in exports to the US [1] - There has been a notable increase in the willingness of export enterprises to convert foreign exchange, while the demand for foreign exchange from import enterprises has weakened [1] Group 2: Market Trends - The net inflow of foreign exchange under the trade account has steadily increased in recent months [1] - The flow of northbound capital in the Chinese stock market has significantly improved since August [1] - The market's short positions against the offshore RMB are at a recent low, providing room for further strengthening of the RMB [2] Group 3: Future Projections - Deutsche Bank forecasts that the RMB will appreciate to 7.0 against the US dollar by the end of 2025 and to 6.7 by the end of 2026 [2] - The seasonal characteristics of exports and strong demand for profit repatriation at year-end are expected to drive a concentration of foreign exchange conversion by exporters in the fourth quarter [1]

Group 1: Macro Economic Insights - The recent appreciation of the RMB against the USD may be seen as a "catch-up" due to a weaker dollar environment, with the RMB appreciating by approximately 2.3% compared to a 10% depreciation of the dollar index in the first eight months of 2025 [5][6][7] - The domestic equity market's recovery and dovish signals from the Federal Reserve are key triggers for the recent rise in the RMB exchange rate, despite weaker manufacturing PMI data [6][8] - The RMB is expected to continue appreciating, but short-term fluctuations may occur due to uncertainties in global economic policies, particularly in Japan [8][9] Group 2: ETF Market Dynamics - Since June, non-broad-based ETFs have seen rapid growth, with net inflows reaching 227.9 billion RMB, indicating a shift in retail investor preferences towards ETFs [11][12] - Broad-based ETFs have experienced significant net redemptions, suggesting that while overall ETF inflows may appear modest, retail funds are actively entering the market through non-broad-based ETFs [12][13] - The current bull market is characterized by a shift from actively managed funds to ETFs, driven by factors such as product variety, cost efficiency, and ease of access [13][14] Group 3: Power Equipment and New Energy Sector - The photovoltaic industry is facing severe overcapacity, with nominal production capacity exceeding 1200 GW, leading to significant price declines across the supply chain [18][19] - Recent government initiatives aim to curb internal competition and stabilize the market, with signs of price recovery in the polysilicon segment [19][20] - Despite ongoing losses in the main supply chain, specialized companies are performing better than integrated firms, indicating a potential for recovery as supply-demand dynamics improve [20][21] Group 4: Chemical Industry Performance - The chemical raw materials and products manufacturing sector reported a revenue of 4.46359 trillion RMB in H1 2025, a year-on-year increase of 1.4%, but profits fell by 9% to 181.46 billion RMB [23][24] - The basic chemical industry achieved a revenue of 1.1707 trillion RMB in H1 2025, with a profit of 73.17 billion RMB, reflecting a 3.5% revenue increase year-on-year [24][25] - The petrochemical sector, excluding major state-owned enterprises, saw a revenue decline of 7.3% in H1 2025, indicating challenges in profitability [25][26] Group 5: Pharmaceutical Sector Developments - Sunshine Nuohuo (688621.SH) reported a revenue of 590 million RMB in H1 2025, a 4.87% increase, with a significant Q2 performance showing a 15.73% year-on-year growth [28][29] - The company is advancing its innovative drug pipeline, with multiple projects in clinical trials, indicating a strong growth trajectory [29][30] - Haofan Bio (301393.SZ) achieved a revenue of 270 million RMB in H1 2025, reflecting a 20.10% increase, driven by strong demand for GLP-1 drugs [32][33] Group 6: Food and Beverage Sector Insights - Shanxi Fenjiu (600809.SH) reported a revenue of 23.96 billion RMB in H1 2025, a 5.4% increase, but faced pressure on profit margins due to changing consumer preferences [40][41] - Wuliangye (000858.SZ) achieved a revenue of 52.77 billion RMB in H1 2025, a 4.2% increase, but is navigating challenges in maintaining price stability amid competitive pressures [45][46]