Goldman Sachs strategists said that further appreciation of the renminbi is expected to benefit China’s stock market, as the renminbi has shown resilience amid the Sino-US trade dispute.
Goldman Sachs strategists wrote in a report on Monday that every 1% appreciation of the renminbi against the US dollar could boost China’s stock market by 3%, thanks to factors such as improved corporate earnings prospects and increased foreign capital inflows. Earlier this month, the bank raised its 12-month renminbi-to-US dollar exchange rate forecast from 7.35 to 7.
“Chinese stocks tend to perform well when the renminbi appreciates,” Goldman Sachs strategists said, adding that the outlook for the renminbi underpins their “overweight” stance on the Chinese stock market and that non-essential consumer goods, real estate and brokerage stocks usually do well when the renminbi strengthens.
Since President Donald Trump launched his tariff offensive on April 2, the MSCI China Index has recouped its losses, with a three-month trade truce with the United States helping to fuel the market rebound. As concerns over Trump’s tariffs and tax cuts have underpinned the “sell the US” argument, Chinese assets have generally benefited from the diversification of capital outflows from the US market.
Despite investors’ continued doubts about the appeal of the US stock market and the dollar, the People’s Bank of China has been striving to maintain the stability of the RMB and support the economy through interest rate cuts.
Market volatility caused by tariff uncertainties has led Goldman Sachs strategists to frequently adjust their expectations for Chinese stocks. In April, they twice lowered their expectations for the MSCI China Index, but as China and the United States agreed to temporarily lower tariffs, they raised their expectations in May.
The Mingcheng Capital International Index and the Hang Seng China Enterprises Index both dropped by more than 1% on Monday, after both had risen for six consecutive weeks.
In May, the onshore yuan rose about 1.4% against the US dollar, reaching 7.1674 on Monday, the highest level since November.
Against the backdrop of the continuous decline of the US dollar, the People’s Bank of China raised the reference rate of the RMB on Monday to the largest extent since January. The official central parity rate of the RMB against the US dollar was set at 7.1833, but it was still lower than the spot price of the RMB, indicating that China is controlling volatility and trying to avoid a sharp appreciation similar to that of the New Taiwan dollar.
Technical analysis:
Gold: Gold performed even more strongly last Friday. We didn’t get the chance to buy at the low price we were aiming for. The US market is closed today, so liquidity may be limited. We don’t recommend chasing long positions or following through on momentum break signals. Instead, it’s better to wait for a break in liquidity and then consider going long. For specific positions, please consult the plugin.
(Gold 15-minute chart)
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Nasdaq: Our sell performance in the red zone last Friday was excellent. Although Trump later withdrew his tariff threat against Europe and postponed it until July 9th, we still expect the price to face downward pressure in the future. However, we do not pursue the operation of breaking the momentum within the day. We can consider sweeping the liquidity above 21,267 and then look for new short signals. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: The pullback range last Friday failed to support the price decline, but this blue area remains a crucial price center. Although it was briefly broken, the price eventually rebounded relying on this level. For today, we focus on the bullish signal in the green area; meanwhile, we add a yellow sweep for liquidity. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the picture, please contact V: Hana-fgfg and note “666” in the message.
Today’s key economic data and events to focus on:
Spring Bank Holiday – Market Closed
Memorial Day holiday market closed
