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August Economic Activity Prints Below Expectations

LIQUIDITY: The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.2% on Monday. The operation left liquidity unchanged given it netted off CNY10 billion reverse repos maturing 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) rose to 2.2195% from 2.1761% on Friday, Wind Information showed. The overnight repo average increased to 2.1820% from the previous 2.1022%.

YUAN: The currency weakened to 6.4550 against the dollar from 6.4408 on Friday. The PBOC set the dollar-yuan central parity rate slightly lower for a third trading day at 6.4497, compared with the 6.4566 set on Friday.

BONDS: The yield on 10-year China Government Bond was last at 2.8875%, up from 2.8625% on Friday, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.33% to 3,715.37 while the CSI300 index declined 0.44% to 4,991.66. Hang Seng Index lost 1.50% to 25,813.81.

FROM THE PRESS: China's economy may enter a slower-growth phase after the pandemic as the recovery in consumer demand will take time, said Wu Ge, the chief economist of Changjiang Securities and a former researcher at the People's Bank of China in an interview with Yicai.com. As the debt levels of the government and the society at-large continue to rise, the core of the entire economy including interest rates will trend lower, Wu said. China is still implementing countercyclical adjustment measures despite claims otherwise by policymakers, as indicated by increased sales of special-purpose LGBs and high-frequency data on lending, Wu said. China is expected to take more monetary measures as part of its countercyclical adjustment through possibly greater lending, social financing, said Wu. Monetary policy tends to be an overall-scale issue, even as policymakers said they want to target helping small businesses, as stabilizing the economy is the biggest help to SMEs, and only on this basis, can the innovative and targeted injections take effect, said Wu.

China is expected to stimulate a weakening economy by more policy measures to increase investment, demand and support to businesses, Yicai.com said in an analysis of Wednesday's release of August indicators. Industrial output is projected to slow to 5.8% affected by the pandemic, flooding, restricted production and chip shortages, Yicai said citing economists' forecast. Infrastructure investment may disappoint as only CNY488 billion LGBs backed by infrastructure were issued, while CNY664 billion had been anticipated, Yicai said. The policymakers have made the "cross-cycle adjustment" the keyword in H2, including faster credit expansion at the end of last month and greater government-led investments, said the newspaper.

China should increase the "management of expectations" and guidance of the property market so that the planned credit expansion doesn't again flow into the properties market, according to a commentary published by China Securities Journal, written by Dong Ximiao, analyst at Merchants Union Consumer Finance. The central bank had indicated plans to counter a slowdown in lending by pre-issuing loans planned for next year in the second half, which could be misinterpreted by the property market as a shift away from prudence, Dong wrote. Banks should improve support and services for boosting rental properties and partner with local government to develop a healthier housing market, Dong said.

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