Futures Recover Losses As Inflation Softens

The PBOC matched maturities with injections at its OMO operations again today. The overnight repo rate has jumped, rising above its 7-day counterpart. Overnight repo rate last up 32bps at 2.2266% while the 7-day repo rate is hovering around yesterday's intraday highs at 2.2143%, slightly above the PBOC's 2.20% prevailing rate. Futures are flat after recovering opening losses.

• Data earlier showed CPI rose 1.1%, slightly below estimates of 1.2% and down from 1.3% in May. PPI rose 8.8%, in line with estimates and down from 9.0% in May. Slightly lower CPI figures could clear the way for the PBOC who have intimated a switch in policy bias with discussion of a targeted RRR cut and supportive fiscal measures.
• Elsewhere there are reports the PBOC may carry out structural monetary policies including cutting targeted reserve requirement ratios and refinancing to agriculture and small business in the second half, the 21st Century Business Herald reported citing analysts. Major moves such as a wide-ranging cut of interest rates or reserve ratio are unlikely, as the two-year GDP will be close to the potential, the newspaper said. There could be a RRR cut for lenders meeting the inclusive finance requirement to lend to SMEs, which can help resolve insufficient bank capital while keeping liquidity controlled, the newspaper said citing Wu Chaoming, chief economist of Chasing Securities.