Report Information - Report Title: "Beware of the Risk of RMB Appreciation" - Research Institution: Huatai Futures Research Institute - Date of Publication: September 5, 2025 [1] Investment Rating - No investment rating for the industry is provided in the report. Core View - The report warns of the risk of RMB appreciation. The current economic expectation differential favors the RMB, the Sino-US interest rate differential is neutral, and trade policy uncertainty is also neutral. In the short term, the USD/CNY is expected to fluctuate between 7.1 - 7.2, while in the medium to long term, attention should be paid to the appreciation resistance range of 6.9 - 7.0 [32][35]. Summary by Directory 1. Quantity and Price Observation - The implied volatility curve of the 3-month USD/CNY option shows an appreciation trend of the RMB, with the put-side volatility higher than the call-side [4]. - The policy counter-cyclical factor has returned below 5%, and the 3-month CNH HIBOR - SHIBOR spread has fluctuated [10]. 2. Fundamental and View Macro - Interest Rate Cuts and Liquidity - There is a divergence in the pricing of interest rate cuts between the US and Europe. The TGA account had a balance of $595.7 billion on August 27, the Fed's reverse repurchase balance was $34.7 billion, and the reserve balance of depository institutions was $3.34 trillion (-$56.6 billion). Powell's speech at the global central bank annual meeting on August 22 turned dovish [17]. Core Chart - US Economy - US employment authority has declined, with a significant downward revision of non - farm payrolls in July. Inflation from tariffs is not significant, and economic expectations have been revised upwards, with fiscal spending rebounding and the August economic outlook showing resilience [19]. Tariff Events - In the trade negotiations between the US and 17 key countries and regions, there is a "gradient implementation." Some agreements have been reached, but many are still in the negotiation stage. The US has also adjusted tariff policies on various industries, and on August 29, the US Court of Appeals ruled that most of Trump's tariff policies were illegal [20][21]. China's Economy - In July, China's exports and consumption showed resilience, but inflation did not rebound, and fixed - asset investment faced pressure. In August, the national PMI was 49.4, with production, new orders, and other indicators showing different trends [22]. Macro - Scenario Deduction - Different time windows are affected by various factors such as domestic policies, Fed policies, inventory cycles, and tariff impacts [30][31]. 3. Overall View - The current economic expectation differential is favorable for the RMB, the Sino - US interest rate differential is neutral, and trade policy uncertainty is neutral. In the short term, the USD/CNY is expected to fluctuate between 7.1 - 7.2, and in the medium to long term, attention should be paid to the appreciation resistance range of 6.9 - 7.0 [35]. 4. Risk Assessment - The range of the basis fluctuation of the futures main contract from January 2022 to the present is between - 1100 and 900 [36].

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the **Chinese economy** and its impact on the **bond market**. It highlights the current economic indicators, trade dynamics, and monetary policy implications. Core Insights and Arguments 1. **Economic Indicators**: July's PMI data shows a decline in manufacturing activity, with the manufacturing PMI at 49.3, down 0.4% month-on-month. The non-manufacturing PMI is at 50.1, also down 0.4% month-on-month, indicating a slowdown in business expansion [3][4][21]. 2. **Trade Dynamics**: Exports in July reached $321.7 billion, a year-on-year increase of 7.2%, but exports to the U.S. fell significantly by 21.7%. Exports to ASEAN and the EU grew by 16.6% and 9.2%, respectively [7][28]. 3. **Inflation Metrics**: The CPI remained stable, with a year-on-year change of 0%, while the PPI decreased by 3.6%. Food prices, particularly for meat and vegetables, saw notable declines, contributing to the CPI's stability [8][9][11]. 4. **Social Financing**: The total social financing in July showed a good performance, primarily driven by government bond issuance, with a total of 431.26 trillion yuan, reflecting a year-on-year growth of 9% [14][19]. 5. **Credit Conditions**: Credit data for July indicated a decrease in new loans, attributed to seasonal factors and a lack of comprehensive demand and investment recovery. New RMB loans decreased by 500 billion yuan [16][17]. 6. **Market Sentiment**: The bond market is under pressure due to low absolute yields, making bonds less attractive compared to other asset classes. The current yield on 10-year government bonds is around 1.68% [24][26]. 7. **Future Outlook**: The economic data suggests that the bond market may not experience significant negative impacts in the short term, with a neutral stance expected in the medium term. The overall sentiment towards the bond market remains positive [23][30]. Other Important but Potentially Overlooked Content 1. **Sector Performance**: The manufacturing sector is facing challenges, with new orders and production indices below critical levels, indicating a slower demand expansion compared to supply [4][10]. 2. **Employment Pressure**: The employment situation remains a concern, particularly with the influx of new graduates entering the job market, which may affect production and business operations [5][6]. 3. **Policy Implications**: The discussion emphasizes the need for ongoing monitoring of macroeconomic fundamentals and their sensitivity to the bond market, especially in light of potential U.S. interest rate cuts [22][23]. 4. **Investment Strategy**: The recommendation for investors is to adopt a neutral stance with a focus on short-term trading opportunities, particularly in the context of potential market corrections [27][31]. This summary encapsulates the key points discussed in the conference call, providing insights into the current economic landscape and its implications for the bond market.

1. Report Industry Investment Rating No relevant information provided. 2. Core Viewpoints - 7 - month economic data was generally below expectations, showing a weak - recovery pattern of "stable production, under - expected consumption, and intensified investment differentiation", which confirmed the "weak demand + low inflation" fundamental for the bond market. The risk of a trend - based correction in the bond market was generally controllable. It was suggested to seize the adjustment window in the third quarter and gradually allocate bonds after the adjustment [1]. - Short - term concerns included changes in risk - preference assets such as equities and commodities, and the effect of policies like fiscal discounts on private - sector financing demand [1]. 3. Summary by Catalog 3.1 Demand - Real estate: The transaction area of commercial housing in 20 cities decreased both month - on - month and year - on - year, significantly lower than the seasonal level. The transaction area of second - hand housing in key cities showed differentiated performance. In Beijing and Shenzhen, it increased week - on - week, while in Shanghai, Guangzhou, Hangzhou, and Chengdu, it decreased [2][12]. - Consumption: Automobile consumption decreased week - on - week. The box office of movies decreased week - on - week but was stronger than the same period last year. The national migration scale index increased week - on - week, and the subway passenger volume in first - tier cities increased [2][38]. 3.2 Production - Mid - and upstream: The operating rates of rebar, PTA, and polyester filament decreased, while the operating rate of petroleum asphalt plants increased [3][47]. - Downstream: The operating rate of all - steel tires for automobiles increased, while that of semi - steel tires decreased, but the latter was still at a seasonal high [3][47]. 3.3 Investment - Rebar: Apparent consumption decreased, but the price increased week - on - week [4][64]. - Cement: The price decreased week - on - week, while the shipping rate and inventory ratio increased [4][64]. 3.4 Trade - Export: Port throughput increased, while the comprehensive CCFI index decreased. The BDI index increased week - on - week [5][75]. - Import: The comprehensive CICFI index decreased by 1.2% week - on - week [5][75]. 3.5 Prices - CPI: The agricultural product wholesale price 200 index increased by 0.7% week - on - week. Vegetable prices increased, while egg, pork, and fruit prices decreased [6][86]. - PPI: The Nanhua industrial product price index increased by 0.2% week - on - week. Brent crude oil and COMEX gold prices decreased, while LME copper prices increased. The commodity futures market was stable with differentiated performance among varieties [6][91]. 3.6 Interest - rate Bond Tracking - Next week (August 18 - 22, 2025), the planned issuance of interest - rate bonds was 765.2 billion yuan, with a net financing of 495.2 billion yuan [7][110]. - As of August 15, the cumulative issuance progress of replacement bonds this year exceeded 95%, that of new general bonds was 72.0%, and that of new special bonds was 64.5% [7][112][117]. 3.7 Policy Weekly Observation - The Q2 monetary policy report emphasized implementing and refining a moderately loose monetary policy, including maintaining sufficient liquidity, matching financing and money supply with economic growth targets, and promoting a reasonable recovery of prices [122][123]. - Multiple policies were introduced in the week, including fiscal subsidy policies for consumer loans, tax policies for express delivery services, and real - estate policies in some regions [123][124].

Group 1: Report Industry Investment Rating - No relevant content provided Group 2: Core Viewpoints of the Report - The basis for the US dollar's correction has loosened due to the lack of new driving forces. The US dollar index is in a volatile and weak pattern, while the RMB exchange market continues to operate smoothly. The euro lacks internal driving force for its movement, and the Japanese yen strengthens due to increased global risk aversion [1][3][4] - Fundamentally, the economic expectation difference is neutral, the Sino - US interest rate spread is neutral, and the uncertainty of trade policies is neutral, with the marginal negative impact weakening [2] Group 3: Summary According to Related Catalogs Market Analysis US Dollar against RMB - The US dollar index is under pressure this week. The preliminary value of the Markit manufacturing PMI in July dropped to 49.5, and Trump's tariff proposal has raised concerns about inflation and trade frictions. China's cross - border payments and receipts have reached a record high, and the foreign exchange market continues the net inflow pattern. The RMB's global payment share in June was 2.88%, and the LPR remains unchanged [1] Other Currencies - **Euro**: The economic recovery in the eurozone is slow, and the tariff negotiation process is sluggish. The preliminary values of the composite PMI and manufacturing PMI in July are 51 and 49.8 respectively, still in the contraction range. The European Central Bank maintains the interest rate unchanged and emphasizes "exceptional uncertainty" [3] - **Yen**: The US - Japan tariff crisis has eased. Japan's manufacturing PMI in July dropped to 48.8. After the two countries reached a tariff agreement, the yen strengthened due to increased risk - aversion demand [3] Strategy - **US Dollar against RMB**: It will maintain a short - term volatile and weak pattern within a range, as the US dollar index is under pressure and the market is waiting for the progress of Sino - US trade negotiations [4] - **Euro**: It will maintain a volatile pattern due to weak consumption in the eurozone and ongoing US - EU trade negotiation games [4] - **Yen**: It will maintain a relatively strong volatile pattern after the US - Japan trade agreement [4]

1. Report Industry Investment Rating No relevant information provided. 2. Core Views of the Report - The RMB is expected to maintain a volatile and slightly stronger short - term trend, with the key factors for the future being the trend of the US dollar and changes in policy attitudes [2]. - The US dollar index continues to be weak, and the US dollar is under short - term pressure due to concerns about Powell's tenure stability and a decline in economic growth expectations [3]. - The euro is expected to maintain a volatile and slightly stronger mid - to short - term trend, but it still faces downward risks if the interest rate differential logic dominates again and the US dollar rebounds [4]. - The Japanese yen is expected to remain strong in the short term, supported by the divergence in US - Japan policies and trade negotiation expectations [5]. 3. Summary by Relevant Catalogs Market Analysis US Dollar vs RMB - The RMB is relatively stable. The USD/CNY has fallen to around 7.30. China's Q1 GDP grew by 5.4% and exports in Q1 increased by 6.9% year - on - year, with a 12% growth in March, providing fundamental support. The RMB is expected to maintain a volatile and slightly stronger short - term trend [2]. US Dollar Index - The US dollar index is weak. The market's expectation of interest rate cuts within the year continues to rise, with derivatives pricing factoring in a cumulative reduction of 86.8 basis points. The US economy shows a weak recovery in the real economy, and the US dollar is under short - term pressure [3]. Other Currencies - **Euro**: The European Central Bank cut interest rates by 25 basis points. The euro is relatively strong in the short term due to the decline in confidence in the US dollar, but it may face downward risks if the US dollar rebounds [4]. - **Japanese Yen**: The Japanese yen is strong. The narrowing of the US - Japan interest rate differential is the core factor driving the appreciation of the yen. The market's expectation of an interest rate hike by the Bank of Japan within the year is postponed but the direction remains unchanged [5]. Strategy - **US Dollar vs RMB**: In the short term, the exchange rate deviates from fundamentals and the RMB is relatively strong. In the medium term, it has a basis for stable oscillation [6]. - **Japanese Yen**: The US - Japan interest rate differential continues to narrow, and the USD/JPY is in a weakening trend [6]. - **Euro**: The euro is expected to maintain a volatile and slightly stronger mid - to short - term trend [6].