The Chinese yuan continued to power ahead on the first session of the week against both the US dollar and Euro. Supported by momentum from last week’s interest rate decision, the yuan made gains as many in the market continue to speculate under the notion that central bankers will be left with nothing but to increase the flexibility in the underlying trading band. On Friday, the People’s Bank of China lifted rates again for the fifth time in order to curb growth in the seemingly overheated economy with growth running at an annualized 11.9 percent pace, stirring up inflationary pressures at a 4.4 percent pace. Ultimately, the sentiment looks to continue, helping the yuan to trade against the US dollar to the tune of 7.5652.



Chinese Bank Surpasses Citi As World’s Largest
Surprising market investors, Industrial & Commercial Bank of China surpassed Citigroup in the US as the world’s largest bank by market capitalization. A stunning announcement that shows the increasing depth of Chinese influence, market capitalization was at $254 billion for ICBC, with shares now trading at 5.75 yuan. Citigroup on the other hand currently sports a $251 billion capitalization, with shares closing at $50.73 on Friday. Incidentally, it has been noted, amid the glee, that the price at which ICBC shares are trading is also a reflection of an overheated and over speculated market as share values are now 28 times earnings. The figure is far above the 11 for Citi which is deemed more profitable.

Asian Investors Support Barclay’s Bid For ABN Amro
In a stunning move, the Chinese government has entered the bidding on ABN Amro over the weekend. Funding through the Barclay’s bid, the Chinese government has invested enough to garner as much as 7.7 percent of the bank, in tandem with Singapore’s Temasek proposed stake of 3.3 percent. The investment is the second of its kind, following the investment in Blackstone Group before the firm went public earlier this summer as the government looks to continue its diversification of over a trillion dollars in reserves.

Singapore Inflation Climbs To One Year High
Inflation in Singapore vaulted higher in the month of June, to the highest level in a year as travel became more expensive for the average consumer. After gaining 1 percent in the month of May, the Department of Statistics noted that inflationary pressures advanced by 1.3 percent on the annualized comparison, even as the monthly change showed a decline of 0.3 percent. Additionally supportive of higher rates of inflation seem to be the government’s lifting of a goods and services tax to 7 percent this month. All in all, today’s report continues to boost CPI estimates into year end as the government continues to further their policy on currency appreciation. As a result, the Sing dollar made gains to hit a high since 1997 at S$1.5082.

Regional Stocks Mixed During The Session
China stock markets rose for a second day following the expected rate hike decision by the People’s Bank of China as investors continue to clamor for investment in the world’s fastest growing economy. Boosted by the banking sector, the CSI 300 benchmark index gained 184.84 points or 4.7 percent to close at 4,156.72. Hong Kong shares were additionally supported on mainland optimism, helping to take the Hang Seng Index higher through the session, closing up 73.66 points at 23,365.56. However, it was Singapore stocks that made declines on the day as concern emerged over a new government policy that would dampen speculation in development stocks. As a result, the Straits Times index dipped 16.03 points to 3,635.35 at the close.

Richard Lee is a Currency Strategist at FXCM.