MNI China Daily Summary: Monday, July 23

     TOP NEWS: The People's Bank of China (PBOC) announced further monetary

easing measures as part of an ongoing trend that MNI have been highlighting over

recent months and that contrasts starkly with the official policy stance of

prudent, neutral policy. The obvious victim of this policy has been an

accelerated decline in the value of the yuan. Perhaps the main risk facing the

yuan, however, is that of a potential fiscal stimulus over the coming months.

     YUAN: USDCNH has risen back to 6.7829, breaking the 6.7800 level. The pair

is showing some reversal potential with the trigger coming last Friday from

suspected state intervention, but widespread yuan bearishness is creating

conditions for the reversal. Bears will need a move below the 6.7300-6.7365

range to give them the upper hand and suggest that the 5-wave move higher in the

pair since March has run its course for now.

     LIQUIDITY: The People's Bank of China injected CNY502 billion via one-year

medium-term lending facilities (MLF) loans today, with rates unchanged at 3.3%,

according to a statement on the PBOC's website. CNY170 billion in reverse repos

matured today. A total of CNY370 billion in reverse repos will mature this week.

CFETS-ICAP's money-market sentiment index closed at 31 on Friday, unchanged from

last Thursday.

     MONEY MARKET RATES: The benchmark 7-day deposit repo average rose to

2.6249% on Monday from 2.6241% on Friday; the overnight average increased to

2.3552% from 2.3157% on Friday: Wind Information.

     YUAN: The yuan rose to 6.7524 against the U.S. dollar on Monday from

Friday's 6.7795 closing, following today's stronger fixing. The PBOC set the

yuan central parity rate at 6.7593, stronger than Friday's 6.7671, marking the

first daily rise since July 11.

     BONDS: The yield on the benchmark 10-year China Government Bond was last at

3.4650%, down from the previous close of 3.5150%, according to Wind Information.

     STOCKS: Shares in Shanghai rose significantly as banking and construction

sector shares climbed despite a slump in healthcare shares amid a vaccine

scandal. The Shanghai Composite Index closed 1.07% higher at 2859.54. Hong

Kong's Hang Seng Index decreased 0.03% to 28215.90. The 4-week rolling

correlation between 2-year Chinese interest rate swaps and Chinese stocks has

fallen to zero from as high as 0.97 on July 4. The correlation has broken down

in favour of stocks while rates have remained on their steep downtrend, despite

edging slightly off their lows.

     FROM THE PRESS: New asset management rules published by the PBOC will

alleviate refinancing pressures on enterprises and boost market liquidity, China

Securities Journal reported, citing experts. The new rules will cushion the

impact of transferring off-balance sheet assets onto the books and ease credit

tightening pressures on the real economy, the Daily said. By boosting market

sentiment, the new rules will increase risk appetite and ease downward pressure

on GDP growth, the newspaper said, citing Pan Xiangdong, Chief Economist at New

Times Securities. The new rules will also relieve the pressure of capital

redemption for commercial banks and increase broad liquidity, Pan added.

     The yuan is likely to rebound against the U.S. dollar soon as market

sentiment has seen positive changes, Shanghai Securities News said, citing

experts. The U.S. dollar index is unlikely to remain above the 95.0 level as the

Michigan Consumer Sentiment Index (MCSI) and Import Price Index in June were

both below expectations, the newspaper said, citing Citic Securities. The yuan

is expected to remain stable or strengthen slightly against the U.S. dollar in

the second half of the year, said Shenwan Hongyuan Securities, according to the

newspaper. China's economic growth should stabilise in the long term due to

strengthening bilateral trade with other countries and increasing domestic

demand, the securities firm added.

     China should implement targeted fiscal policies and further cut taxes and

fees to support the economy, China Securities Journal said, citing experts.

Beijing should optimise expenditure and strengthen the management of public

private partnership (PPP) projects in order to stimulate investment, said the

newspaper, citing Jia Kang, head of the China Academy of New Supply-side

Economics, a private think tank. To boost domestic demand and manufacturing

investment, the government should implement targeted measures that meet the

financing requirements of the real economy, the newspaper said, citing Li

Xunlei, Chief Economist at Zhongtai Securities.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: sherry.qin@marketnews.com

--MNI London Bureau; +44 207-862-7489; email: ukeditorial@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]