Plane and core

Boeing, the World’s largest aerospace company, raised its forecast for commercial aircraft demand over the next 20 years in China to $480 billion (from $400 billion a year ago). This translates to 4,330 new planes in the period, tripling the fleet as increases in personal wealth and urbanisation drive up demand for air travel. Apple, the World’s most valuable technology company, may triple revenue from China over two years as the maker of the iPhone expands its sales network in the Country and Chinese consumers become increasingly affluent, says Morgan Stanley. China may contribute more than $9 billion of sales to Apple in the year ending September 2012, compared with $2.9 billion in the last fiscal year. Last month, too, Apple started taking orders from customers in China via its website.

Both forecasts underline the inherent potency of the domestic economy and the ‘inevitability’ that it will become a vibrant demand-led one. Similarly, UBS is forecasting 9% GDP growth in 2011 and 2012.

After yesterday’s euphoria, though, equities had a wobble today, despite Citigroup looking for as much as a further 10% rise by year-end. This was due to concern on money supply and inflation, as the Government is reported to be shifting, subtly, from a “moderately loose” to “sound” policy. Similarly, the rate of growth is also expected to ease by 1-2% to 15-16% next year. It may also begin daily monitoring of bank loans, just as inflation looks set to hit 4% (for October) and maybe 5% in Q1 next year.

Cotton is also yet now another commodity to reach new record prices levels ($1.3176 per pound) and China’s coastal shipping rates, last week, jumped 26% from the previous week as cold weather spurred coal demand. Government bond yields and interest rate swaps both advanced, too, on the back of it whilst background noise came from Australia and India, which both hiked interest rates (first time in six months and sixth time this year respectively).

But the Yuan could be a leveller and President Hu, who was in Paris yesterday, reiterated China’s commitment to “fair and stable” exchange rate; and Yuan Forwards point to +3.6% over the next 12 months.

“He who would learn to fly one day must first learn to stand and walk and run and climb and dance; one cannot fly into flying” - Friedrich Nietzsche

Shanghai Composite:
Today: -0.28% to 3,045.43 at close
(best since 16 April)
This week: +2.2%
Since 5 July: +28.8%
YTD: -7.1%

Hang Seng:
Today: +0.08% to 23,671.42 at close
This week: +2.5%
YTD: +8.2%

Oil futures: $83.32
Gold futures: $1356.80
(new ‘immediate delivery’ high of $1388.10 on 14 October)
Euro/$ spot: 1.3953

HEADLINES

DEBT

• “Moderately loose” to “sound”: money supply growth target to be reduced from 17% to 15-16% next year, says China Business News
• China may ask banks for daily monitoring of loans, says China Business News
• China's US dollar borrowing costs fall on ratings expectations…..
  ……but Government bond yields rise and interest rate swaps advance on concern that inflation will quicken
• PBOC sells one year bills at 2.2913% which is unchanged after last week’s +20bp

YUAN

• Chinese President Hu reiterates Yuan reform commitment, says Le Figaro
• Yuan rises on speculation China will allow appreciation hand in hand with economic recovery
• Yuan Forwards point to +3.6% over 12 months

EQUITIES

• Citigroup bullish: further increase of up to 10% this year
• Shenyin & Wango plumps for stocks being range bound
• Kingsun say equity prices will be sustained by liquidity – but monetary policy is uncertain

GROWTH

• China’s share of global growth rises with average 7.8% per annum predicted for 2011-2020 (including 9% in 2011 and 2012), says UBS

DOMESTIC

• Guangzhou starts restricting car traffic for Asian Games, says Xinhua
• China to subsidise electric car battery development, says Business News

HONG KONG & TAIWAN

• HKMA buys Yuan assets to diversify reserves
• China draws Taiwan ever closer economically