Thursday, December 18, 2008 | posted by RedApple
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So rumours are flying again in the street that China bought over 60 billion of EURO over the past 2 weeks which caused the huge USD squeeze. Yes that would do it!

But let's think about that is going on:

Here are a list of recent economic numbers from China (Source: Bloomberg)
1. Actual FDI YTD YOY 26.29% versus 35.06% prior (slowing down...)
2. PPI YoY 2.0% vs 6.6% prior
3. Trade Balance 40.09B versus 35.24B prior (but see the export numbers)
4. Imports YoY -17.9% vs 15.6% prior
5. Exports YoY -2.2% vs 19.2% prior (we are waiting for this to drop)
6. CPI YoY 2.4% versus 4.0% prior
7. Retail Sales YoY 20.8% versus 22.0% prior (still robust)
8. IP YoY 5.4% versus 8.2% prior
9. M2 YoY 13.7% versus 15.0% (still strong)

The economic releases confirm our previous analysis that Chinese cannot rely on FDI or export to support their growth engine and hence the economic stimulus is announced. If their trade balance and FX reserve is going to reverse, you can imagine that they will be less reliant on USD holdings and as suggested less buying of USD Debt. If the rumour of USD selling was true... one wonders how long can FED keeps its rate low since they have already given up on the USD.