MNI China Daily Summary: Friday, February 22

     EXCLUSIVE: Further yuan gains against the U.S. dollar should prove limited

even if there is a positive outcome to trade talks, with 6.6 to the greenback a

likely upside barrier as the currency faces economic headwinds in the year

ahead, a Chinese government advisor and leading economists told MNI Thursday.

"If the outcome of the (U.S./China) trade talks beats expectations by March 1,

CNYUSD would rise further in short term, but the 6.6-level would be a ceiling,"

said Zhang Ming, a senior fellow at the Institute of World Economic and Politics

under the Chinese Academy of Social Sciences and an advisor to the government.

     POLICY: China still has plenty of room for monetary policy maneuver, so

there is little need for large scale asset purchases or QE, the People's Bank of

China (PBOC) said in its Q4 Monetary Policy Report published late Thursday. The

PBOC also said it will keep its prudential monetary policy neither too loose nor

too tight, strengthen counter-cyclical adjustment, maintain ample liquidity and

stabilize market interest rates in the next step.

     DATA: The average price of new homes in 70 major cities, excluding

subsidized units, increased 10.8% y/y in January, the fastest gain in 20 months,

data released by the National Bureau of Statistics today showed. It compared

with a 10.6% gain in December, according to MNI calculations. On m/m basis, the

average price gained 0.6%, slowing from December's 0.8% gain.

     DATA: Chinese banks purchased net CNY103.1 billion FX on behalf of their

clients, reversing the net selling of CNY56.0 billion FX in December, according

to data by State Administration of Foreign Exchange (SAFE). This indicated that

capital outflow further eased as the yuan advanced 2.33% against the dollar last

month.

     LIQUIDITY: The PBOC injected CNY40 billion via 7-day reverse repos netting

the same amount given no reverse repos mature, according to Wind Information.

The PBOC has net injected a total CNY60 billion of liquidity this week as no

reverse repos matured in the period, Wind Information said.

     RATES: The 7-day weighted average interbank repo rate for depository

institutions (DR007) rose to 2.6200% from Thursday's close of 2.2885%, Wind

Information showed. The overnight repo average increased to 2.4300% from

Thursday's 2.0316%. 

     YUAN: The yuan depreciated against the dollar to 6.7186 from Thursday's

close of 6.7101. The PBOC set a stronger central parity to the dollar at 6.7151

compared with 6.7220 yesterday. The yuan gained 0.70% against the dollar this

week. 

     BONDS: The yield on 10-year China Government Bond was last at 3.155%, up

1.5 bps from the close of Thursday, according to brokers.

     STOCKS: The benchmark Shanghai Composite Index closed 1.91% higher at

2,804.23, back to the 2800 level since Sept 28, 2018. The 4.54% gain this week

was the largest weekly growth in three years, Wind Information said. Hong Kong's

Hang Seng Index rose 0.65% to 28,816.30.

     FROM THE PRESS: The PBOC is expected to modestly ease monetary policy by

cutting rates and expanding its balance sheet, as it has removed the expressions

of "neutral" monetary policy and "control the overall money supply" from its

latest Monetary Policy Report, Ming Ming, a former PBOC advisor said in a

report. Since Q4 2016, the PBOC had been using "neutral" to indicate a tighter

monetary policy bias, said Ming in his report.

     China is planning to cut taxes and fees for securities companies to lower

operating costs, the Securities Times WeChat edition said. The consultation

published by the Securities Association of China on Thursday to seek opinion

from brokers is aimed at reducing costs for their business activities, not

cutting the stamp duty for A-shares as speculation has suggested, the paper

said.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: wanxia.lin@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]