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Needle Still Points South


Yields Bounce as Equities Make New Monthly Highs


Heading North


Bull Rally Accelerates


Economists Survey Raises 2021 CPI Forecast To 4.9%

     TOP NEWS: The yuan regained its position as the sixth most-used currency
for domestic and international payments by value in November, with a share of
1.75%, according to the Society for Worldwide Interbank Financial
Telecommunication (SWIFT), the international payments network. The yuan had
dropped to seventh position in October with a share of 1.46% due to seasonal
effects following China's Golden Week holiday, SWIFT said. Overall, the value of
yuan payments increased by 23.35% month-on-month in November, compared with a
19.10% decrease in October.
     RATES: Money market rates were mixed. The seven-day repo average was last
at 2.8899%, compared with Wednesday's average of 2.8773%. The overnight repo
average was at 2.6587%, compared with Wednesday's 2.6636%.
     LIQUIDITY: The People's Bank of China skipped open-market operations on
Thursday, saying that an increase in fiscal spending toward the year-end can
hedge the impact of maturing reverse repos and that liquidity conditions are
still at a high level. This resulted in a net drain of CNY30 billion for the
day, as a total of CNY30 billion in reverse repos matured. It was the fifth
consecutive trading day that the PBOC has skipped OMOs. The PBOC has drained a
net CNY240 billion from the interbank market so far this week, which analysts
said has worsened the structural problem of liquidity, particularly considering
that demand has increased at the end of the year. 
     YUAN: The yuan was stronger against the U.S. dollar on Thursday after the
People's Bank of China set the fixing rate slightly stronger for the day. The
yuan was last at 6.5411 against the U.S. unit, compared with the official
closing price of 6.5555 on Wednesday. The People's Bank of China set the yuan
central parity rate against the U.S. dollar at 6.5412 on Thursday, stronger than
Wednesday's 6.5421. Today's fixing was the highest since Sept. 13.
     BONDS: The yield on benchmark 10-year China government bonds was last at
3.8800%, lower than the previous close of 3.9000%.
     STOCKS: Stocks rose, with the winery and textile sectors leading gains. The
benchmark Shanghai Composite Index closed up 0.63% at 3,296.38. Hong Kong's Hang
Seng Index was 0.12% higher at 29,782.15.
     FROM THE PRESS: The growth of M2, a broad measure of money supply, is
expected to fall to around 9% in 2018 in China, and the growth of credit will
also slow, as the authorities try to tackle debt risk and curb asset bubbles,
the 21st Century Business Herald reported Thursday, citing analysts and
economists. Growth in M2 has eased this year as a result of deleveraging in the
financial sector. New regulations for the wealth management sector will keep
biting, so off-balance sheet instruments and interbank business will continue to
decelerate, making double-digital growth in M2 next year hard to envision, the
report said. The pace of corporate loans is expected to remain stable
considering that the authorities are enhancing the financial sector's support of
the real economy and that lending costs are rising at a slower pace. But
household credit will be under downward pressure because of restrictions on
mortgage loans and other controls on the property market, the report said. (21st
Century Business Herald)
     Tightness in structural liquidity conditions has appeared in the interbank
market as the People's Bank of China has skipped open-market operations for
three consecutive days this week, the China Securities Journal reported
Thursday. The PBOC turned off its tap in the critical year-end period,
reflecting its bias toward tightness to control liquidity conditions with
consideration for strict regulation and deleveraging. But the structural problem
in liquidity allocation was already obvious, and the situation has been worse
than expected, the report said. Volatility in the bond and stock markets should
increase next year as tightness in structural liquidity becomes the norm, it
said. However, in the first quarter, conditions may loosen to accommodate a
marginal downturn in the economy, the report added. (China Securities Journal)
     The property market will be more stable in 2018, compared with the heavy
destocking and tight controls of the past two years, the Economic Information
Daily said in a front-page commentary Thursday. The Central Economic Work
Conference emphasized an expansion of the rental market and improving effective
mechanisms for the long term, and both goals need to be pursued at a proper
pace, the commentary said. Financial regulators will continue to stop excessive
flows of capital into the property market. Proposed property taxes that aroused
so much attention will not be implemented in the short term, the newspaper
predicted. (Economic Information Daily)
     The bond market is likely to rebound early next year with loosened
liquidity conditions and higher demand for bond purchases, the China Securities
Journal reported Thursday. Stable monetary policy and softened growth in
industrial profits will boost the performance of the bond market, but it will
not last long, the newspaper projected. Two factors will drag down the momentum:
strict financial regulation and higher inflation before the Chinese New Year.
Consumer inflation in January is expected to be around 1.5%, accelerating
further in February because of a lower comparison base in the same period in
2017 and the impact of the long holiday, the report said. (China Securities
--MNI Beijing Bureau; +86 (10) 8532 5998; email:
--MNI Beijing Bureau; +86 (10) 8532-5998; email:
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