Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
China’s interbank market liquidity eased in May amid expectations authorities will take measures to deal with idle funds in the financial system and support expansionary fiscal policy, the latest MNI China Liquidity Survey has shown.
The MNI China Liquidity Condition Index stood at 23.8 in May, the lowest in 24 months, down from last month’s 26.2. A lower reading indicates more liquidity.
Interest rates on one-year AAA negotiable certificates of deposit (NCDs), a measure of short-term interbank lending costs, reached 2.1021% on May 27, below the PBOC’s MLF rate of 3.45%.
Abundant liquidity has led some economists to suggest any further moves by the People's Bank of China to cut banks' reserve requirement ratios could be delayed. And with Beijing planning to issue about CNY7.7 trillion of CGBs and local-government debt between May to December, expectations the PBOC could purchase treasury bonds to support an expansionary fiscal stance have increased. (See MNI: Chances Rise PBOC Cuts RRR As Gov Debt Issuance Increases)
The MNI China PBOC Policy Bias Index read 21.4 in May, indicating traders believed the central bank’s policy stance had loosened the most since June 2019.
The PBOC provided CNY125 billion in a 1-year MLF on May 15, fully offsetting the maturing volume. The central bank also drained net CNY440 billion via its open market operation as of May 28, MNI calculated.
ECONOMY UP
Industrial production rose 6.7% y/y in April, up from 4.5% y/y in March, offset by retail sales growth slowing to 2.3% y/y, 0.8pp lower than previously, with the MNI China Economy Condition Index reaching 65.5 in May, up from 57.1 and the highest since October last year.
“Industrial output growth in April was above market expectations, driven by strong exports,” a trader based in Guangdong told MNI.
Strong export growth is unlikely to be impacted by recent U.S. action to increase tariffs on Chinese products. (See: MNI INTERVIEW: U.S. Will Find Replacing China EV Parts Difficult)
RATES
The MNI China 7-Day Repo Rate Index increased to 54.8 in May, from the previous 46.4, with 33.3% of participants expecting an increase in rates and 23.8% seeing a decline.
The MNI China 10-year CGB Yield Index read 31.0, up from 28.6, with 42.9% of traders predicting the yield would fall, down from 47.6% last month.
Financial News, a PBOC affiliated news outlet, has said longer-term yields were reasonable between 2.5% to 3.0%.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.