Brown Brothers’ Thin Sees Yuan Forwards Weakening on Rate Cut

Win Thin, global head of emerging markets strategy at Brown Brothers Harriman & Co. in New York, comments on China’s first interest-rate cut since 2008, in a note to clients today.

“The fact that PBOC eased policy today ahead of the China data deluge starting Friday suggests further softness lies ahead.

‘‘We warn that PBOC easing is unlikely to be the strong tonic for risk appetite that it once was. China is easing aggressively because the fundamental backdrop is deteriorating.

‘‘We are still calling for basic stability in yuan spot for now as well as further weakness in one-year non-deliverable forwards.

‘‘We do not think China is embarking on a campaign of significant nominal depreciation now, and expect the recent bout of depreciation to be limited and even reversed.

‘‘If we continue to get a steady stream of poor China data, this should lead to further yuan non-deliverable forwards weakness. While we do not expect greater depreciation, we think non-deliverable forwards will nevertheless start to price in more and this would imply greater market pessimism regarding China growth.’’

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