MNI China Daily Summary: Friday, October 11
EXCLUSIVE: Fiscal stimulus that meets market expectations will likely boost iron ore futures up towards CNY900 a tonne, but the rise will be short lived due to high inventory levels and overall weak demand, local analysts told MNI, warning disappointing measures would see prices peak at about CNY850 in Q4.
LIQUIDITY: The People's Bank of China (PBOC) conducted CNY94.2 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net drain of CNY183.8 billion after offsetting maturities of CNY333 billion today, according to Wind Information.
RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.5407% from 1.6542% on Thursday, Wind Information showed. The overnight repo average decreased to 1.3921% from 1.5225%.
YUAN: The currency strengthened to 7.0676 against the dollar from 7.0787 on Thursday. The PBOC set the dollar-yuan central parity rate lower at 7.0731 on Friday, compared with 7.0742 set on Thursday. The fixing was estimated at 7.0749 by Bloomberg survey today.
BONDS: The yield on 10-year China Government Bonds was last at 2.1200%, down from Thursday's close of 2.1300%, according to chinamoney.com.cn.
STOCKS: The Shanghai Composite Index was down 2.55% to 3,217.74, while the CSI300 index fell 2.77% to 3,887.17. The Hang Seng Index rose 2.98% at 21,251.98.
FROM THE PRESS: Authorities can maintain the basic stability of the yuan at a reasonable level, as the People’s Bank of China has a rich toolbox to prevent any one-way movement or fluctuations, said Economic Daily in a commentary. External uncertainties concerning developed economies’ inflation and economic growth may affect the progress of their monetary easing, while authorities should strengthen monitoring and early warning of cross-border capital flows to maintain the smooth operation of the FX market, the newspaper said.
Chinese authorities are likely to issue additional treasury bonds or special treasuries of about CNY1.5-2 trillion in Q4, 21st Century Business Herald reported citing analysts. Zhou Junzhi, chief macro analyst at CSC Financial, said any additional bond issuance within CNY3 trillion would not bring about additional government spending, but only meet the budget fiscal expenditure set earlier this year. More supporting policies in supplementing bank capital, resolving local government off-balance sheet debt, boosting consumption, and subsidising low-income groups are expected, said Ming Ming, chief economist at CITIC Securities, without estimating the possible scale.
The People's Bank of China's recently launched CNY500 billion Securities, Funds and Insurance Companies Swap Facility (SFISF) will enhance the resilience of the capital market and curb pro-cyclical behaviours such as the "herd effect", China Securities Journal reported citing analysts. The tool allowing financial institutions to swap their bonds and stocks with high-liquid treasuries and central bank bills to invest in the stock market, will not increase base money supply, and is expected to be expanded in terms of scale and scope of collateral, the newspaper said citing analysts. The central bank will conduct operations through selected primary dealers, which may include China Bond Insurance Co, the Journal said citing an unnamed source.