MNI China Daily Summary: Monday, August 5

     TOP NEWS: Both USDCNY and USDCNH traded higher Monday, with both pairs

breaking 7 in the morning session. Sentiment against the yuan soured, triggering

some short-selling pressure on fears of an escalating trade war after U.S.

President Donald Trump last Friday warned of new tariffs on $300 billion worth

of Chinese goods. It is the first time that the onshore yuan has risen above the

psychologically important level of 7 per U.S. dollar since May 2008.

     YUAN: The yuan closed at 7.0352 against the U.S. dollar from Friday's close

of 6.9416, the weakest level since March 2008. The PBOC set a weaker fixing at

6.9225 , the weakest since December, 2018.

     POLICY: The People's Bank of China (PBOC) will take "necessary and targeted

measures" against fluctuations in the foreign exchange market, cracking down on

short-term speculation and stabilize market expectations, it said on its

website. The comment came after both USDCNY and USDCNH traded above 7 in the

Asian morning session. The PBOC attributed the yuan's depreciation to dampened

expectations on trade talks after the U.S. threat to hike tariffs on more

Chinese goods. The central bank emphasized that the yuan remained stable and

strong against a basket of currencies.

     DATA: The Caixin China general services PMI index fell to 51.6 in July from

June's 52, to a five-month low, a sign of a slowing service industry across

China. Growth of new orders decelerated but remained robust, helped by new

product launches and an increase in new customers. Growth of new export orders

accelerated to a three-month high. Companies reported strong demand overseas,

Caixin said.

     LIQUIDITY: The PBOC skipped open market operations (OMOs) for a 10th day,

leaving liquidity unchanged, according to Wind Information. Liquidity in the

banking system is reasonable and ample, the PBOC said.

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

institutions (DR007) fell to 2.5885% from Friday's close of 2.6355%, Wind

Information showed. The overnight repo average decreased to 2.5259% from

Friday's 2.6027%.

     BONDS: The yield on the 10-year China Government Bond was last at 3.0550%,

down from Friday's close of 3.0875%, according to Wind Information.

     STOCKS: Soured by the yuan sinking below 7 per dollar, the benchmark

Shanghai Composite Index fell 1.62% to 2,821.50, the lowest level since

February. Hong Kong's Hang Seng Index decreased 2.85% to 26,151.32.

     FROM THE PRESS: China can cope with economic risks and challenges and

continue along a path of stable and healthy development, according to Ning

Jizhe, the deputy director of the National Development and Reform Commission.

Writing in the People's Daily today, Ning said that the Chinese economy had

significantly increased its stability and resilience in the first half of this

year, and he was confident it would continue to improve in efficiency.

     China's financial tasks for the second half should focus on promoting

stability, which would enable China to control its overall economic situation,

deal with the main contradictions, and address the key areas of economic and

social development, PBOC-affiliated newspaper Financial News said. China should

address areas of economic weakness and maintain stable growth and high quality

economic development, the newspaper said.

     China's housing companies should expect tighter financial supervision in

the second half if the industry is overly active, the Economic Information Daily

reported citing analysts. Financial regulations can be expected to be

strengthened while more cities will implement permanent tools to control risks

in the housing sector, the daily 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

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