MNI China Daily Summary: Monday, June 4

     TOP NEWS: The People's Bank of China (PBOC) is very likely to cut the

reserve requirement ratio in a targeted direction in exchange for banks

returning medium-term lending facilities (MLF) borrowed from the central bank,

said Securities Times in a commentary. An RRR cut is likely as liquidity this

month will be tight during banks' assessment tests at the end of second quarter

and as large amounts of MLF will mature, it said. However, an RRR cut will not

mean the current prudent and neutral monetary policy will be changed; rather, it

is to maintain stability of banks' liquidity and increase support for economic

sectors which are in line with the government's plans, it said. 

     LIQUIDITY: The PBOC injected CNY20 billion and CNY20 billion in 7-day and

28-day reverse repos on Monday, with rates unchanged at 2.55% and 2.85%,

respectively, according to a statement on the PBOC website. It resulted in CNY20

billion net injection as a total of CNY20 billion reverse repos matured today. A

total of CNY500 billion in reverse repos will mature this week, and a total of

CNY259.5 billion in MLF loans will mature on Wednesday. CFETS-ICAP's

money-market sentiment index closed at 37 on Friday, down from 61 on Thursday. 

     DATA: A trade-weighted weekly currency index of China's yuan dropped for a

second consecutive week last week, according to data released by the PBOC. The

CFETS Weekly RMB Index, which measures the yuan relative to a basket of 24

currencies, fell by 0.31% on June 1 from the previous week to 97.63. As of last

Friday, the RMB gauge has recorded a 2.61% gain year-to-date, up from 94.85 on

Dec 29, according to MNI's calculations.

     MONEY MARKET RATES: 7-day repo average dropped to 2.7405% from 2.9415%

Friday, after the PBOC net injected CNY20 billion via OMO. The overnight repo

average decreased to 2.5732% from Friday's 2.7979%.

     YUAN: The yuan rose to 6.4142 against the U.S. dollar from Friday's close

of 6.4169. Earlier today, the PBOC set the yuan central parity rate at 6.4208,

weaker than last Friday's 6.4078.

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

3.6475%, up from the previous close of 3.6250%, according to Wind Information.

     STOCKS: Shares rose in Shanghai, led by insurance companies, with China

Pacific Insurance Company up by close to 4%. The benchmark Shanghai Composite

Index closed 0.52% higher 3,091.19. Hong Kong's Hang Seng Index gained 1.6% to

30,981.79.

     FROM THE PRESS: China's gross domestic product (GDP) growth this year is

expected to reach around 6.6%, higher than the target of "around 6.5%" announced

by the government in March, said Economic Information Daily, a newspaper under

the Xinhua News Agency. The higher-than-expected growth will be driven by the

government's measures to increase domestic consumption and by the growth of new

economic drivers, the commentary said. GDP growth in the second quarter is

likely to be around 6.7% to 6.8%, the commentary said. However, China must still

be cautious of downward pressure on economic growth in the second half, it said,

due to financing difficulties for small companies amid deleveraging and risk

control campaigns, a drop in property investment and potential downward risks to

exports.

     China's statement regarding China-U.S. trade talks this weekend, released

by the official Xinhua News Agency, shows that China still insists neither side

will start a trade war if trade talks are ongoing, a social media account run by

the official communist newspaper People's Daily said. If the U.S. takes any

tariff action against China, all agreed-upon terms would become invalid, the

article analyzing the statement said. China will not cause trouble, but it is

not afraid to tackle trouble caused by other countries, it said. China's

reforms, opening up and increasing domestic consumption are all its own national

strategies, and will be implemented even without the trade tensions, the

newspaper said, stressing it will advance the campaigns at its own pace. 

***Comment: The trade talks will end on Monday. According to the Xinhua

statement, the two sides are willing to discuss the details about the

implementation of the Washington agreement. However, no specific consensus or

deals have been announced at this point.

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

--MNI Singapore Bureau; +65 8233 2326; email: Asia-Editor@marketnews.com

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