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Free AccessMNI China Daily Summary: Monday, September 3
TOP NEWS: The yuan is set to rally for the rest of this year, as the
central bank pushes the exchange rate back towards its preferred level against a
currency basket, researchers and official advisors have told MNI. "The
reintroduction of the counter-cyclical factor into the yuan's fixing formula was
maybe partly due to the sharp decline of the CFETS index," Zhang Ming, senior
fellow at the Institute of World Economics and Politics under the Chinese
Academy of Social Sciences, said in his latest note.
YUAN: The yuan's trade-weighted basket rose after two consecutive weeks of
decline, according to People's Bank of China (PBOC data) Monday. The CFETS
Weekly RMB Index, which measures the yuan versus a basket of 24 currencies, rose
by 0.33% on Friday from the previous week, registering at 93.08. The index is
down 1.87% from its end-2017 reading of 94.85 on Dec 29, according to MNI's
calculations.
YUAN: The yuan strengthened to 6.8293 against the U.S. dollar from Friday's
closing of 6.8299. Earlier today, the PBOC set the yuan central parity rate at
6.8347, weaker than Friday's 6.8246 rate. It was the fourth weaker fixing in a
row.
YUAN: EURCNH continues to struggle to confirm a break of the 8.0 level.
Euro weakness against the dollar on Friday saw the pair drop below this level
yet again as the short-term trend turns negative. Success or failure at
overcoming 8.0 will likely have implications for European and emerging market FX
more broadly. Based on rate market trends, a further rally in EURCNH is facing
fundamental hurdles.
YUAN: USDCNH is trading at its daily lows of 6.8370 as of 14:27 Beijing
time, as bears look to recover the breakout above short-term down trendline
resistance (now support) from the August 15 high. The pair is at a technical
crossroads where a close below 6.8275 would be bearish while a close above
6.8400 would be bullish. Interest rate swaps are trading in the middle of their
recent range, with the 2-year at 2.91%, 8bps outside the US. Price action is
capped between the 55-dma above and the 21-dma below, with the convergence of
the two moving averages suggesting a significant move is on the way. From the
look of the equity market, risks are to the downside as the CSI 300 remains
under pressure despite being off its lows at 3310. However, a strong close in
stocks would improve the outlook for all Chinese financial assets, given the
high correlations at present.
DATA: China's Caixin Manufacturing PMI eased to a 14-month low 50.6 in
August, down from 50.8 in July. New export orders increased, as weaker domestic
demand drove the headline decline.
LIQUIDITY: The PBOC skipped open market operations on Monday, stating on
its website that relatively high liquidity in the market should offset the
impact of government bond issuance. The PBOC's inaction resulted in no change in
liquidity, as no reverse repos matured today, according to Wind Information. It
is the ninth consecutive day in which the PBOC has skipped OMO. No reverse repos
will mature this week, while CNY176.5 billion in one-year MLF will come due.
CFETS-ICAP's money-market sentiment index closed at 28 on Friday, down from 31
on Thursday.
MONEY MARKET RATES: The benchmark 7-day deposit repo average dropped to
2.5765% from 2.6097% on Friday; the overnight average decreased to 2.2567% from
2.2584%: Wind Information.
BONDS: The yield on the benchmark 10-year China Government Bond was last at
3.6000%, up from the previous close of 3.5850%, according to Wind Information.
STOCKS: The Shanghai Composite Index closed 0.17% lower at 2,720.73. Hong
Kong's Hang Seng Index declined 0.8% to close at 27,666.13.
FROM THE PRESS: Issuance of local government bonds hit its highest in over
two years last month, Shanghai Securities News reported. CNY882.97 billion in
local government bonds were issued in August, the most since July 2016. Total
net financing reached CNY765.485 billion, the highest since September 2016, the
newspaper said, citing data from Wind Information. Local government
infrastructure investment also accelerated in August, with railway construction
projects in Changchun and Suzhou being approved, and investment reaching
CNY173.732 billion in total. Details of infrastructure projects in other cities
and provinces will be made public by year-end, the newspaper noted.
The PBOC is expected to use quantitative monetary policies, such as
adjusting its open market operations (OMO) and reserve requirement ratio (RRR),
to maintain liquidity at a stable level, the Securities Daily reported. There is
greater uncertainty over the liquidity outlook in September as banks face
macro-prudential assessments (MPA) at month-end, the U.S. Fed is expected to
increase its interest rate, and the stability of both the yuan exchange rate and
capital flows faces pressure, the newspaper said, citing Wang Youxin, analyst at
a research institute under the Bank of China. Negotiable certificate of deposit
maturities will also peak this month, although structural index adjustments will
help reduce MPA pressure on banks, the newspaper said, citing Ming Ming, analyst
at CITIC Securities.
Financial risks stemming from small- to medium-sized Chinese property
developers are likely to emerge later this year, as financing pressures
increase, the Economic Information Daily reported. As property policies are
still strict and the central government is working to curb house price growth,
these companies are at a disadvantage, particularly as consolidation within the
property sector accelerates, the newspaper said, citing industry insiders.
Policymakers should prevent illegal funds from flowing into the property market,
and should further guide property price expectations and the development of the
property market, the newspaper said.
--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com
--MNI London Bureau; +44 207-862-7489; email: ukeditorial@marketnews.com
[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.