Firmer Local Yields Pulling US-CH Yield Spreads Lower, But Equity Weakness Persists

USD/CNH drifted a little lower post the Asia close on Monday, but couldn't get sub the 7.2850 level in a meaningful way. We track just above this level in early Tuesday dealings, which is very close to the 20-day EMA. Friday lows sub 7.2800 remain intact, while the 50-day EMA is back close to 7.2700. Note onshore spot finished up at 7.2682 for Monday's session.

• Much of yesterday's macro focus was on PBoC's announcement around new operations that will guide short term interest rates and narrow the interest rate corridor.
• This follows steps in recent weeks to also curb the rally in longer dated bonds. Onshore bond yields rose yesterday, the 2yr up nearly 4bps to 1.69%, the 10yr CGB yield got to highs of 2.30%, before closing slightly lower. This benchmark yield is more than 10bps firmer from early July cycle lows.
• For USD/CNH, this helping US-CH yield differentials track lower, although we are only modestly sub recent highs, see the chart below. It seems likely US yield trends will continue to dictate the trend direction of these spreads.
• Equity sentiment remains a negative though, the CSI 300 down 0.85%, closing at fresh lows back to February of this year.
• The local data calendar is empty today, although we await June new loans/money supply figures.

Fig 1: USD/CNH Versus US-CH Yield Differentials