Easing Speculation Dominating In China

Increased focus on the potential for relatively imminent easing from the PBoC seemingly supported Chinese equities (CSI 300 +0.2%, after reversing early losses) on Monday, along with pressuring the yuan and biasing benchmark Chinese interest rates lower (10-Year yields -0.5bp, 5-Year IRS -1.3bp)

• The well-documented worries surrounding the Chinese economic rebound and the troubled property sector (Goldman Sachs warned of persistent, multi-year weakness within the country’s property sector over the weekend) are at the core of the easing calls.
• Citic Securities suggested that a 5-10bp cut to the 1-Year MLF rate could come as soon as Thursday’s operations (consensus in the BBG survey looks for no change, just about), while Nomura also noted the potential for a near-term move (with a particular focus on recent comments from the PBoC Governor).
• Our policy team had already noted that that economic headwinds and inflation data are pressuring the PBoC.
• Chinese brokerages have issued a deluge of calls re: a turnaround in fortunes for stocks, but this, plus the aforementioned easing expectations, failed to generate inflows via the HK Stock Connect channels on Monday, with limited net sales observed via that mechanism.