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(M2) Gains Still Considered Corrective

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     TOP NEWS: China's industrial profit growth slowed to a five-month low of
9.2% y/y in August, from July's 16.2% y/y, the National Bureau of Statistics
(NBS) reported Thursday. For the Jan-Aug period, industrial profits rose by
16.2% y/y to CNY4.42 trillion, moderating from 17.1% y/y in Jan-July. Ongoing
supply side reforms are believed to be the main cause of the slowdown, with base
effects having also played a role in August, the NBS said.
     POLICY: China is accelerating efforts to streamline customs checking
processes and is reducing costs for cross-border trade, officials told a press
conference on Thursday. A "green channel" will be established to accelerate
agricultural customs procedures, said Zhang Guangzhi, director of the National
Port Management Office. Customs clearance times for both imports and exports
will be reduced, the officials noted.
     LIQUIDITY: The People's Bank of China (PBOC) skipped open market operations
on Thursday, resulting in a net drain of CNY60 billion in liquidity, as the same
amount of reverse repos matured today, according to Wind Information. The PBOC
said banking system liquidity is at a relatively high level. It was the fifth
consecutive trading day the PBOC has drained net liquidity. A total of CNY290
billion reverse repos will mature this week. CFETS-ICAP's money-market sentiment
index closed at 39 on Wednesday, down from 44 on Tuesday.
     MONEY MARKET RATES: The 7-day repo average rose to 2.6962% from 2.6935%
Wednesday. The overnight repo average dropped to 2.4353% from Wednesday's
     YUAN: The yuan slid to 6.8770 against the U.S. dollar from Wednesday's
close of 6.8740. The PBOC set the yuan central parity rate weaker for a third
straight trading day at 6.8642, compared with 6.8571 on Wednesday. EURCNH failed
to sustain its break above 8.1 yesterday but the broader uptrend remains intact.
JPYCNH remains below the key 6.1 neckline resistance level, suggesting risk
appetite remains upbeat in the region. Chinese market correlations have shifted
significantly in recent days. The 21-day rolling correlation between CNH and the
CSI300 has collapsed since the start of the week, thanks in part to yuan
strength and equity weakness. That said, we would not expect the yuan to rally
in the absence of a continued recovery in stocks.
     BONDS: The yield on the benchmark 10-year China Government Bond was last at
3.6350%, according to Wind Information.
     STOCKS: The benchmark Shanghai Composite Index closed 0.54% higher at
2791.77. Hong Kong's Hang Seng Index declined 0.55% to 27,664.45.
     FROM THE PRESS: The PBOC is unlikely to increase open market operation
interest rates in reaction to Wednesday's U.S. Fed hike, as growth slows and
trade tensions weigh on the outlook, the China Securities Daily said.
Nevertheless, "liquidity in the banking system is at a relatively high level,"
the PBOC stated Wednesday, as increased fiscal spending is offsetting the impact
of maturing reverse repo operations, the newspaper reported.
     Premier Li Keqiang announced China will cut tariffs for 1585 products as of
Nov 1 and increase support for foreign investors, according to news agency
Xinhua. China should implement "more active" strategies to open up the economy,
Li stressed, and also employ measures to boost domestic demand in a
"complicated" domestic and international environment. China will reduce duties
on certain machinery equipment to 8.8% from 12.2%, on textile and construction
materials to 8.4% from 11.5%, and on paper products to 5.4% from 6.6%, Xinhua
reported. Including qualified foreign investor-led projects in the country's
construction plans and speeding up foreign investor approvals for land and ocean
use should help to improve China's investment environment, Li said.
     Some USD66 billion in funds will flow into China's A-share market if MSCI
Inc. proposals announced Wednesday are implemented, Shanghai Securities News
reported, citing Guan Zhengbin, head of the Asia-Pacific research department of
MSCI. MSCI is considering increasing the weight of China's mainland shares in
its global indices to 20% from 5% currently, the newspaper said. MSCI is also
mulling the inclusion of the Shenzhen Stock Exchange's tech-heavy ChiNext
NASDAQ-style board in its indices from next year, and mid-cap stocks from 2020,
the newspaper noted, with these plans set to be finalised by Feb 20 next year.
     ***COMMENTS: FTSE Russell also announced earlier this morning that A-shares
will be included in its emerging market indices. The move will result in
mainland Chinese shares constituting 5.5% of the FTSE Emerging Index. Inclusion
will be implemented in three separate tranches, with the first set for June next
year and the final in March 2020.
--MNI London Bureau; +44 207-862-7489; email:
[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]

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