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Aggregate Financing Comes in Below Expectations But Annual 'Liquidity' Continues To Rebound

CHINA
  • The PBoC reported this morning that aggregate financing rose by 756bn CNY in June, significantly below expectations of 1.35tr CNY with new yuan loans rising by 679bn CNY (1.125tr CNY exp.).
  • However, China ‘liquidity’ metric, computed as the annual change in China Total Social Financing (TSF), continues to rise, now up 3tr USD in the past year.
  • Even though a recovery in liquidity has historically had a positive impact on domestic risky assets and some China-sensitive commodities (i.e. copper) or currencies (i.e. AUD), the easing conditions (policy and liquidity) have been barely enough to limit the downside risk on the real economy.
  • The bottom chart shows that liquidity-sensitive sectors such as tech equities have remained 'depressed' despite the sharp rebound in liquidity since the start of the year.
  • We also saw in recent weeks that ST rates have been constantly falling in the past two months, currently pricing more cuts from PBoC as the economic outlook has weakened significantly due to the zero-Covid policy.
    • 7D IB repo rate dropped by 1.1% this week and is currently trading over 80bps below China ‘benchmark’ policy rate at 2.1% (7D reverse repo).
  • However, China officials have been reluctant to cut rates as they have been inferring that the policy rate is currently standing at its ‘fair’ value

Source: Bloomberg/MNI

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  • The PBoC reported this morning that aggregate financing rose by 756bn CNY in June, significantly below expectations of 1.35tr CNY with new yuan loans rising by 679bn CNY (1.125tr CNY exp.).
  • However, China ‘liquidity’ metric, computed as the annual change in China Total Social Financing (TSF), continues to rise, now up 3tr USD in the past year.
  • Even though a recovery in liquidity has historically had a positive impact on domestic risky assets and some China-sensitive commodities (i.e. copper) or currencies (i.e. AUD), the easing conditions (policy and liquidity) have been barely enough to limit the downside risk on the real economy.
  • The bottom chart shows that liquidity-sensitive sectors such as tech equities have remained 'depressed' despite the sharp rebound in liquidity since the start of the year.
  • We also saw in recent weeks that ST rates have been constantly falling in the past two months, currently pricing more cuts from PBoC as the economic outlook has weakened significantly due to the zero-Covid policy.
    • 7D IB repo rate dropped by 1.1% this week and is currently trading over 80bps below China ‘benchmark’ policy rate at 2.1% (7D reverse repo).
  • However, China officials have been reluctant to cut rates as they have been inferring that the policy rate is currently standing at its ‘fair’ value

Source: Bloomberg/MNI