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Aided By Lower US Yields, Equities Mixed Post LPR Cut


USD/CNH followed broader USD gyrations on Tuesday, post the Asia close. We got to lows around 7.1960 as US yields pulled back amid spillover from EU and Canada moves. We track just above 7.2000 in early Wednesday dealing, as weaker US equity sentiment saw the USD pare losses late in US trade. Note USD/CNY finished up at 7.1925 on Tuesday. The CNY NEER (J.P. Morgan Index), edged down slightly to 124.52, just off recent highs.

  • The local data calendar is fairly quiet for the next few days, with largely second tier data, although home price figures on Friday should draw some attention.
  • Local stocks finished marginally higher (CSI 300 +0.21%) as market digested the record 25bps cut to the 5yr LPR. Northbound stock connect flows were close to flat. In US trade, the Golden Dragon fell 1.33%.
  • As our London team noted, the lack of immediate reaction re the LPR cut can probably be attributed to questions re: short-term support provided by the move as existing Chinese mortgage rates only tend to reset once a year, usually on/around 1 January.
  • Onshore China government fell yesterday, with the policy bias still for easier settings. US-CH yield differentials sit close to multi month highs, although US yield shifts will remain the dominant driver of these spreads.
  • State banks also reportedly sold USD's post yesterday's LPR cut, so onshore spot moves beyond 7.2000 may still be guarded against.

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