Holiday spending, trade talks, renminbi

In a sign that consumption is still being held back by concerns over the virus and households’ finances, domestic tourism spending during the Labour Day holiday was down 60% y/y despite the fact that the holiday was extended by one day this year and that there are few remaining restrictions on travel within China. Meanwhile, although today’s phone call between US and Chinese officials has eased concerns about an imminent breakdown of the phase one trade deal, tensions are still likely to flare up again ahead of the US election. This would put downward pressure on the renminbi but as the past week has shown, the PBOC is likely to lean against the wind to prevent a significant sell-off.