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DATA: The Chinese economy slowed to 0.4% y/y in the second quarter, the weakest since a historic contraction in the first three months of 2020 when the pandemic first hit, lower than a median forecast of 1.2%, given the damage of Covid lockdowns during April and May, data by the National Bureau of Statistics showed. Retail sales unexpectedly jumped by 3.1% y/y in June, reversing May's 6.7% decline and outshining the forecast 0.3% gain, to hit a four-month high. Industrial production rose 3.9% y/y in June, rebounding from May's 0.7% but underperforming the forecast 4.3%. Fixed-asset investment eased slightly to 6.1% y/y in H1, from the 6.2% gain in the Jan-May period, better than the 5.8% forecast.
POLICY: Economic recovery in regions hit by the pandemic in China accelerated since June, with industrial output and unemployment significantly improved in Shanghai city and Jilin province, said Fu Linghui, spokesman of the National Bureau of Statistics at a briefing.
POLICY: China will accelerate stimulus policy in the second half of the year as uncertainties on overseas economic conditions and complicate the domestic pandemic, Fu told reporters.
LIQUIDITY: The People's Bank of China (PBOC) injected CNY100 billion via one-year medium-term lending facilities and CNY3 billion via 7-day reverse repos with the rate unchanged at 2.85% and 2.10%, respectively. This keeps the liquidity unchanged after offsetting the maturity of CNY100 billion MLF and CNY3 billion repos today, according to Wind Information. The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.
RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 1.5602% from 1.5350% on Thursday, Wind Information showed. The overnight repo average rose to 1.2128% from the previous 1.1695%.
YUAN: The currency weakened to 6.7670 against the dollar from 6.7480 on Thursday. The PBOC set the dollar-yuan central parity rate higher at 6.7503, compared with 6.7265 set on Thursday.
BONDS: The yield on 10-year China Government Bond was last at 2.7850%, down from Thursday's close of 2.7875%, according to Wind Information.
STOCKS: The Shanghai Composite Index lost 1.64% to 3,228.06 while the CSI300 index fell 1.70% to 4,248.53. Hang Seng Index tumbled 2.19% to 20,297.72.
FROM THE PRESS: China must deal with the dilemma of stabilising growth while checking inflation and paying attention to imported costs to keep the economy operating within a reasonable range, Xinhua News Agency reported late Thursday citing Premier Li Keqiang. Li spoke at a meeting with economic experts and entrepreneurs. The pro-growth policy package has only been implemented for more than a month and there is still considerable room for increasing policy intensity, said Li. China should seize the window of opportunity for economic recovery, stabilise markets, employment and prices to consolidate the recovery foundation in Q3 and promote the return of economic operations to normal as soon as possible, Li was cited as saying.
The yuan may come under certain pressure in Q3 but likely strengthen again in Q4, the Securities Daily reported citing Wang Youxin, senior researcher at Bank of China Research Institute. Stimulated by the Fed's continued sharp rate hikes, the U.S. dollar index will still be supported in Q3, but the index may turn around in Q4 amid rising risk of U.S. economic recession, the newspaper said citing Wang. Rising cross-border capital inflows due to international investors’ increased allocation of yuan assets to diversify risks, and a stable trade surplus, will support the basic stability of the yuan, the daily cited Wang as saying.
Foreign investment will continue to flow into the Chinese stock market as A-shares tend to lead with economic recovery into the second half of the year, the Securities Daily reported citing major foreign financial institutions. The current sentiment in the A-share market has been significantly repaired with liquidity gradually loosening, and its downside risk is less than that of other global markets, the newspaper said citing investment officers from the above institutions. China’s recovery trend is clear and Beijing may add at least CNY1.5 trillion of incremental fiscal funds in H2, either by front-loading next year’s quota of local government special bonds, or asking state-owned enterprises to hand in more profits, the newspaper said citing economists.
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