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POLICY: The Chinese economy will maintain the momentum of a steady recovery into the second half of this year, as consumption will further pick up with increased income and the launch of major projects will boost investment, said Fu Linghui, spokesman of the National Bureau of Statistics at a briefing on Monday.
DATA: China's July macroeconomic indicators slowed down more than expected to the lowest levels this year amid the sporadic outbreak of local Covid-19 cases and floods, the National Bureau of Statistics said. Industrial production grew 6.4% y/y in July, down from the 8.3% gain in June and missing the 7.9% median projection. Retail sales rose 8.5% y/y in July, decelerating from June's 12.1% gain and underperforming the 10.8% forecast. Fixed-asset Investment registered a growth of 10.3% y/y in Jan-Jul period, slowing from 12.6% in H1, also below the 12.0% projection.
LIQUIDITY: The People's Bank of China (PBOC) conducted CNY600 billion through one-year medium-term lending facility (MLF) and CNY10 billion via 7-day reverse repos with the rate unchanged at 2.95% and 2.20% respectively. The operation drained net CNY100 billion from the market as CNY700 billion MLF maturing Tuesday and CNY10 billion maturing today, according to Wind Information. The operation aims to fully meet the liquidity demands from the financial institutions and to keep liquidity reasonable and ample, considering the liquidity to be hedged by the liquidity released by the reserve requirement ratio cut last month, the PBOC said on its website.
RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 2.1732% from 2.1860% on Friday, Wind Information showed. The overnight repo average decreased to 2.0470% from the previous 2.1609%.
YUAN: The currency strengthened to 6.4756 against the dollar from 6.4830 on Friday. The PBOC set the dollar-yuan central parity rate lower at 6.4717, compared with the 6.4799 set on Friday.
BONDS: The yield on 10-year China Government Bond was last at 2.9200%, up from 2.9075% on Friday, according to Wind Information.
STOCKS: The Shanghai Composite Index edged up 0.03% to 3,517.34 while the CSI300 index lost 0.10% to 4,941.07. Hang Seng Index fell 0.80% to 26,181.46.
FROM THE PRESS: The PBOC may not fully renew the maturing CNY700 billion MLF this month, even as the central bank is expected to inject some liquidity, the China Securities Journal said citing analyst Ming Ming of Citic Securities. The PBOC may continue to use the funds unlocked from the July RRR cut to help renew the MLF, Ming was cited saying. While another RRR cut in Q4 is possible, there isn't enough driver for an interest rate cut as expected by some market participants encouraged by the July RRR cut, the official securities newspaper said. The market may have overestimated the PBOC's loosening intention, and could face a correction should the central bank keeps the August MLF rate unchanged, the journal said.
The yuan may face less pressure to gain should China's service trade deficit widens back to its normal pattern, Guan Tao, the global chief economist of BOC Securities, wrote in an analysis on Yicai.com. If domestic demand steadily recovers, imports may accelerate, bringing down current account surplus, Guan wrote. More imports will also increase transportation costs, further widening the usual deficit in transportation service, a trend evident in Q2, said Guan. There may be more outbound Chinese travellers as vaccinations enable some countries to reopen borders, while China's tougher pandemic controls deter inbound traffic, Guan wrote. This may result in more tourism spending overseas than incomes from inbound travers, said Guan.
China is expected to accelerate the sales of local government special-purpose bonds in H2, resulting in CNY2.75 trillion total investment in infrastructure this year, the Economic Information Daily said in a front-page report. The local government bonds will stimulate the economy while the transportation and industrial parks that they funded will improve productivity and reduce costs, the newspaper said citing Luo Zhiheng, the chief macro analyst of Yuekai Securities. Manufacturing investment is also expected to increase due to higher costs of industrial products and credit support, the newspaper said citing Zheshang Securities.