MNI China Daily Summary: Tuesday, December 6

LIQUIDITY: The People's Bank of China (PBOC) injected CNY2 billion via 7-day reverse repos with the rates unchanged at 2.00%. The operation led to a net drain of CNY78 billion after offsetting the maturity of CNY80 billion reverse repos today, according to Wind Information. The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 1.6032% from the close of 1.6009% on Monday, Wind Information showed. The overnight repo average edged down to 1.0256% from the previous 1.0714%.

YUAN: The currency weakened to 7.0009 against the U.S. dollar from the previous close of 6.9561. The PBOC set the dollar-yuan central parity rate lower at 6.9746, the lowest level since September 21, compared with 7.0384 set on Monday.

BONDS: The yield on the 10-year China Government Bond was last at 2.9450%, up from Monday's close of 2.9245%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.02% to 3,212.53, while the CSI300 index rose 0.54% to 3,968.20. Hong Kong's Hang Seng Index lost 0.40% to 19,441.18.

FROM THE PRESS: China is not ready to declare the end of the emergency phase of the Covid-19 pandemic, and it is necessary to continuously optimise control measures, said Xinhua News Agency in a commentary. China has the ability to win the battle of epidemic prevention, as its medical system has withstood the test over the past three years and over 90% of the population is vaccinated. The most difficult period has passed as the severity of the Omicron virus is weakening while the country’s capability to respond has increased, which has provided conditions for more targeted measures, Xinhua said.

The PBOC is not expected to cut its MLF policy rate in December as the easing of Covid restrictions and recent lowering of the reserve requirement ratio (RRR) will support the economy until year-end, according to Shanghai Securities News citing economists. Views are divided on whether the RRR cut will be enough for banks to lower the above-5-year loan prime rate (LPR) in December without the need for the PBOC to cut the rate on its medium-term lending facility (MLF) given very low net interest margins at the banks. One economist said commercial bank deposit rate cuts in September, coupled with the RRR cut, will lead to cut in the above-5-year LPR in December. A MLF cut in January will depend on factors such the strength of the property market and the outlook for U.S. interest rates.

Chinese assets are attracting more overseas institutional investors amid the continuous easing of China’s Covid control measures, the introduction of real estate support policies, as well as the weakening of U.S. dollar, Yicai.com reported. Morgan Stanley raised its rating on the Chinese stock market from “equal-weight” to "overweight". UBS raised their forecast for yuan in March, June, September and December next year to 7.3, 7.1, 7 and 6.9 against the dollar, as recent policies support their view that the economy will improve from Q2 2023. The yuan is expected to remain volatile in the near term, and could test the 6.8-6.9 range should the dollar continue to weaken, Yicai said citing Zhang Meng, analyst at Barclays.