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China Futures Rise After Weak Data

ASIA RATES
  • INDIA: Yields higher in early trade. GDP was robust yesterday, putting India on track for the highest growth rate in the world. Markets also digest a speech from RBI Governor Das yesterday, Das said that the RBI plans to conduct fine-tuning operations to manage unanticipated liquidity flows. Das also said that Variable Rate Reverse Repo (VRRR) auction will remain the main instrument to absorb excess liquidity from the banking system. Das also outlined plans to enable international settlement of transactions in Indian government bonds which would enhance access of non-residents and allow inclusion on global bond indices.
  • SOUTH KOREA: Futures lower for a second day. Data earlier showed the trade surplus widened more than expected, exports grew for the tenth straight month in August driven by sales of chips and automobiles. Exports rose 34.9%, shipments to China rose 26.8% while US exports rose 38%. Manufacturing PMI data was also released, the August figure printed 51.2 compared to 53.0 in July. The slow down represents the impact of lockdowns during the survey period. On the coronavirus front new cases rose to 2,025, back over 2,000 after 1,372 on Tuesday due to fewer tests.
  • CHINA: The PBOC drained a net CNY 40bn of liquidity today, halting its run of injections at August month-end. Repo rates fell, though the overnight rate and the 7-day rate remain inverted at 2.1243% and 2.0858% respectively. Bond futures are sharply higher today, 10-year contract up 34 ticks at 100.37 to hit a fresh contract high. Data earlier showed Caixin manufacturing PMI drop into contractionary territory, the August print came in at 49.2, below estimates of 50.1. Yesterday's official PMI saw both the manufacturing and non-manufacturing measure slip. The weak data has reinforced the view that there could be another RRR cut forthcoming from the PBOC.
  • INDONESIA: Curve twist flattens, 2-/30-Year spread some 2bps tighter. Data showed CPI rose 1.59% Y/Y, in line with estimates, while Indonesia's manufacturing sector remained deep in contraction in August, even as its pace decreased a tad, with Markit M'fing PMI edging higher to 43.7 from 40.1 recorded in July. IHS Markit noted that "the Indonesian manufacturing sector continued to be affected by the second COVID-19 wave in August, and to a severe extent," but "things appear to be improving from July in line with the decline in COVID-19 cases in Indonesia". Elsewhere Moody's warned late Tuesday that the recent virus wave will weigh on economic recovery and undermine the government's plan to trim fiscal deficit, which will be "a credit negative".
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