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Kiwi Slightly Lower, Local Markets Shut

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(Z1) Edging Lower

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RBA Guidance And Market Pricing Further Diverge

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TYZ1 Holds Most Of Friday's Gains

     TOP NEWS: The People's Bank of China announced Friday that it will set up a
"temporary required reserves usage arrangement" during the coming Lunar New Year
holiday that will allow commercial banks to take out and use no more than two
percentage points' worth of their required reserves parked in the PBOC for a
period of 30 days. The central bank said the move was being made to maintain the
stability of money markets, considering the current liquidity demands of banks. 
     RATES: Money market rates were higher. The seven-day repo average was last
at 3.0508%, compared with Thursday's average of 2.9769%. The overnight repo
average was at 2.9176%, compared with Thursday's 2.6577%.
     LIQUIDITY: The People's Bank of China skipped open-market operations on
Friday, saying that an increase in fiscal spending toward the year-end can hedge
the impact of maturing reverse repos and that liquidity conditions are still at
a high level. This resulted in a net drain of CNY50 billion for the day, as a
total of CNY50 billion in reverse repos matured. It was the sixth consecutive
trading day that the PBOC has skipped OMOs. The PBOC has drained a net CNY290
billion from the interbank market this week.
     YUAN: The yuan was much stronger against the U.S. dollar on Friday after
the People's Bank of China set the fixing rate stronger for the day. The yuan
was last at 6.5076 against the U.S. unit, compared with the official closing
price of 6.5348 on Thursday. The People's Bank of China set the yuan central
parity rate against the U.S. dollar at 6.5342 on Friday, stronger than
Thursday's 6.5412. Today's fixing was the highest since Sept. 12.
     BONDS: The yield on benchmark 10-year China government bonds was last at
3.9050%, higher than the previous close of 3.9000%.
     STOCKS: Stocks rose, with the printing and packaging and ceramics sectors
leading gains. The benchmark Shanghai Composite Index closed up 0.63% at
3,296.38. Hong Kong's Hang Seng Index was 0.31% higher at 29,957.32.
     FROM THE PRESS: The Fiscal Work Conference this week determined that China
will deepen tax reforms next year to better distribute income between the
central government and local governments, the Economic Information Daily
reported Friday, citing unidentified officials in the Ministry of Finance. The
conference also emphasized that China will continue to cut taxes and lower
government fees. Fiscal policies will remain active for the 11th consecutive
year, and government expenditure will be more sustainable, the report said.
Local governments' debt risks needs to be countered, it said. The conference
also determined that China will improve its fiscal policies to support people
who used to live in the countryside in acquiring official residency when they
move into cities, the report added. (Economic Information Daily)
     The campaign to reduce overcapacity in the steel industry has been
effective, the Economic Information Daily reported Friday. Production capacity
has been cut by 115 million tons, which exceeds the minimum target of a 100
million ton reduction cut before 2020. The campaign will continue in 2018, with
a prohibition on adding new capacity. (Economic Information Daily)
     Nonbank financial institutions have been under pressure to borrow to make
it through the end of the year, while liquidity conditions have been better for
banks, the China Securities Journal reported Friday. The People's Bank of China
has reiterated that overall liquidity conditions are at a relatively high level,
meaning that any tightness is structural, caused by regulatory and funding
pressures. Liquidity conditions might improve in the first quarter of 2018, when
a set of favorable factors is expected, the report said. Fiscal spending,
targeted cuts to required reserve ratios and banks' greater willingness to lend
will likely offset tax payments, higher cash demand for the Lunar New Year
holiday and maturing reverse repos, the report said. (China Securities Journal)
     The State Council has sent a signal that changes to the local government
tax system have begun and more are on the way, the Securities Daily reported
Friday. The council has determined that an environmental protection tax that
begins Jan. 1 will be fully included in local governments' income. In the
future, some consumption taxes might be allocated to local governments, which
will also benefit from the establishment of real estate taxes, the newspaper
said, citing unidentified people with knowledge of the tax plans. (Securities
Daily)
--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com
--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com
[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]