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EXCLUSIVE: Some Chinese government advisors expect trade war hostilities to
flare again between Beijing and Washington and to last years despite the 90-day
truce agreed by presidents Xi Jinping and Donald Trump, although others hoped
the acute phase of the dispute might be drawing to a close. While the deal,
under which China has offered to buy more American products and the U.S. will
hold off from boosting tariffs on $200 billion in Chinese imports during a
90-day negotiation period, reinforces hopes that both sides are willing to seek
a solution, the Chinese government should nonetheless prepare for a
re-initiation of hostilities, several advisors told MNI. (See full story:
LIQUIDITY: The People's Bank of China (PBOC) skipped open market operations
(OMOs) for a 28th straight trading day Tuesday, leaving liquidity unchanged as
no reverse repos mature, according to Wind Information. The central bank said
total liquidity in the banking system remains at a relatively high level.
RATES: The 7-day weighted average interbank repo average rate for
depository institutions (DR007) decreased to 2.5622% from Monday's close of
2.5885%, Wind Information showed. The overnight repo average dropped to 2.3976%
from Monday's 2.4911%.
USDCNY: The onshore yuan appreciated to 6.8401 against the U.S. dollar
after Monday's close of 6.8885, rising 484 bps to the strongest level since Sept
21. The PBOC set the dollar-yuan central parity rate at 6.8939 Tuesday, 492 bps
stronger than Monday's 6.9431.
USDCNH: The offshore yuan continued to extend its recovery to send USDCNH
to fresh daily low at 6.8334, with the pair rising over 1100 bps over the last
BONDS: The yield on the benchmark 10-year China Government Bond was last at
3.3100%, down from the 3.3700% closing on Monday, according to Wind Information.
STOCK: The benchmark Shanghai Composite Index gained 0.42% to 2,665.96, and
Hong Kong's Hang Seng Index rose 0.29% to 27,260.44.
FROM THE PRESS: Chinese regulators may allow individual investors to trade
local government debt through designated commercial banks next year, Caixin
reported on Tuesday without stating where it obtained the information. This
relaxation will raise disclosure requirements placed on local governments, as
their lack of financial transparency has long been criticized, Caixin said.
About 90% of the investors in Chinese local government debt are commercial
banks, while nearly 70% of buyers of U.S. municipal bonds are individuals, the
(Link to the story: https://bit.ly/2QDX7aI)
Chinese policymakers should strengthen counter-cyclical regulation, said
Shanghai Securities News on Monday night, citing a report written by Yi Gang,
governor of the People's Bank of China. Policymakers should adopt tools to
ensure a soft landing when the economy is overheated or there is a bubble in
asset prices. In the event of a recession or external shock, authorities must
promptly stabilize the financial markets to boost confidence, Yi said according
to the newspaper. (Link to the story: https://bit.ly/2QbqPEx)
Chinese authorities are mulling reducing tariffs on vehicles imported from
the U.S., but it is unclear when and to what extent the tariff will be lowered,
the Securities Daily said Tuesday, citing an anonymous insider. The source
expected the tariff will fall to 15%, from the 40% imposed in July as a response
to U.S. tariffs, the Daily said (U.S. President Donald Trump tweeted Monday
suggesting a similar move from China). Although it will take time yet for a
formal decision, one is expected before the end of the year, the newspaper said
citing the insider. (Link to the story: https://bit.ly/2E2mOuu)
The yuan exchange rate is unlikely to fall below the psychological 7 mark
against the U.S. dollar in the last month of this year given external risks have
eased, said China Securities Journal in its front-page on Tuesday. An increasing
number of market participants believe the U.S. economy is gradually approaching
a turning point, as fiscal stimulus starts to fade and the lag effect of raising
interest rates begins to appear. The Fed has limited room for further interest
rate hikes, the Journal said. Meanwhile, the Sino-U.S. rate spread remains
stable at a low level, which will also help to ease depreciation pressure on the
yuan, the newspaper said. (Link to the story: https://bit.ly/2E1ralY)
China's monetary and fiscal policies will be more active for the year
ahead, but raising the fiscal deficit-to-GDP ratio above the 3% ceiling could
discourage private investment, said Guan Qingyou, head of the Rushi Advanced
Institute of Finance, cited on Tuesday by Lujiazui, a financial magazine run by
China Business News. (Link to the story: https://bit.ly/2EdGwVg)
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