MNI China Daily Summary: Tuesday, August 7

     LIQUIDITY: The People's Bank of China (PBOC) didn't conduct open market

operations today, citing that a relatively high level of liquidity can offset

the impacts of issuance of government bonds and tax payments. No reverse repos

matured today. CFETS-ICAP's money-market sentiment index closed at 25 on Monday,

unchanged from last Friday.

     MONEY MARKET RATES: Benchmark 7-day deposit repo average fell to 2.2552% on

Tuesday from 2.3303% on Monday; Overnight average decreased to 1.5913% from

1.7816% on Monday: Wind Information.

     YUAN: The yuan weakened to 6.8539 against the U.S. dollar on Tuesday from

yesterday's 6.8420 closing, despite a stronger fixing today. The PBOC set the

yuan central parity rate at 6.8431, stronger than Monday's 6.8513. USDCNH has

also given back some of yesterday's gains, currently trading at 6.8498, and

could be in the process of establishing a lower high.

     YUAN: Goldman Sachs' Zach Pandl, Kamakshya Trivedi and Caesar Maasry

believe that "the Chinese yuan will slide further against the U.S. dollar before

regaining strength." They look for USD/CNY to reach CNY6.90-7.10 in the next 3

to 6 months, with the weaker yuan set to worsen sentiment in China and

accelerate capital outflows. The note also suggests that "trade tension will

more than likely escalate before a deal nears." Further out, the analysts expect

a reversal to CNY6.60 within a year as they believe that it is likely that a

trade deal will be struck.

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

3.4750%, up from the previous close of 3.4600%, according to Wind Information.

     STOCKS: Shares in Shanghai mounted a solid rebound, led by energy shares

and infrastructure shares. Shanghai Composite Index closed 2.74% higher at

2,779.37, marking the largest daily growth in the last two years. Hong Kong's

Hang Seng Index increased 1.45% to 28,223.80. 

     FROM THE PRESS: The PBOC may take further measures, including

countercyclical factors, to maintain the stability of the forex market, China

Securities Journal reported, citing market participants. The PBOC's move to

boost the reserve requirements for forex forwards trading indicates that the

yuan's exchange rate has exceeded the preferred range, the newspaper said,

citing Li Qilin, analyst of Lianxun Securities. The return of reserve

requirement for forex trading aims to stabilize and guide market expectations,

but it has not fundamentally changed the downward trend of the yuan, the

newspaper said, citing GF Securities. The yuan still faces downward pressures

due to China's economic fundamentals and monetary policy, the newspaper said,

citing Shenwan Hongyuan Securities.

     Real estate regulation will continue to be tight for a long time despite

downward pressure on China's economy and enhancing macro policies, China

Securities Journal reported. China will ensure that the funds released by more

active fiscal policy and looser monetary policy do not flood into the real

estate market, the newspaper said. China must continue to curb the excessive

growth of housing prices in major cities to prevent potential risks, the

newspaper added. China vows to get rid of reliance on real estate and land

finance to achieve economic transformation and upgrading, the newspaper said.

     Credit default risks may intensify as interest rates rise across the globe,

Securities Times said in a commentary. With Bank of England raising interest

rates and the U.S. Federal Reserve expected to do the same in September, the

PBOC shall likely follow suit, the newspaper said. The gains in interest rates

will increase enterprises' cost of lending and repayments for redeeming bonds,

cultivating credit bond defaults, the newspaper said. The worsening exporting

environment amid the escalating trade tensions further affects enterprises'

production and growth, which may exacerbate credit default risks, the newspaper

added.

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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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