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Bearish Focus


Updated Barclays/Bbg Extension Estimates for US


Late Session Selling

     TOP NEWS: 
     RATES: In the money market, the seven-day repo average rose to 2.7004% from
2.6963% on Monday. The overnight repo average increased to 2.5127% from 2.4323%.
     LIQUIDITY: The People's Bank of China (PBOC) skipped its open-market
operations on Tuesday, citing "moderate" liquidity in the banking system after
the impact of maturing reverse repos. This results in a net drain of CNY130
billion for the day, as a total CNY130 billion in reverse repos matures on
Tuesday. Today is the 12th straight trading day that the PBOC has skipped open
market operations.
     YUAN: The yuan fell against the U.S. dollar today after the PBOC set a
weaker fixing rate for the Chinese currency. The yuan was last at 6.5033 against
the U.S. unit, weaker than Monday's official closing of 6.4956. PBOC set the
yuan's central parity rate at 6.4968 against the dollar, down from 6.4832
     BONDS: The yield on the benchmark 10-year China government bonds dipped to
3.8825% from yesterday's close of 3.9100%.
     STOCKS: Shares rose on the Shanghai Stock Exchange, led by producers of
coal gas and storage facilities. The benchmark Shanghai Composite Index closed
0.13% higher at 3,413.90. In Hong Kong, the Hang Seng Index gained 0.36% to
     FROM THE PRESS: China's interbank market has ample liquidity even after the
PBOC skipped open market operations for 11 days, the PBOC-run daily Financial
News said Tuesday. The central bank has also made ample preparations to prevent
a cash crunch at the end of the current Chinese new year in February, when cash
demand surges, the newspaper said. That includes a temporary reduction in the
cash required to set aside by banks, among other measures, Financial News said.
(Financial News)
     Chinese authorities are expected to use more indirect measures to manage
the value of the yuan, including adjusting interest rates, and accelerate
market-based reform of FX policies, the official China Securities Journal
reported Tuesday citing interviews of economists. Economists also expect the
authorities to broaden the participants of its interbank FX market and enrich
its FX products to attract investments from more overseas institutions, the
report said. (China Securities Journal)
     The risk that China's local government debt may trigger a financial crisis
is low given the outstanding total is within the standard set by the IMF, Chen
Long, a researcher affiliated with the Ministry of Finance, said in a People's
Daily commentary on Tuesday. Most local government debt went to financing
infrastructure projects, which boost growth and improve productivity, Chen said.
Still, China needs to speed up the reform of local governments' fiscal and
funding structures to improve their balance sheets, Chen said. (People's Daily)
     China should not let local authorities relax controls over the property
market even if some slowing signs appear, the 21st Century Business Herald
reported Tuesday. Property prices in some cities are set to fall for lacking
actual demand and purchasing power, so the authorities should allow the market
correct itself, it said. China should not continue to rely on the property
sector for growth at the expense of excess borrowing, and having financial
institutions relying heavily on the property sector may endanger the economy,
the newspaper said. (21st Century Business Herald)
--MNI Beijing Bureau; +86 (10) 8532 5998; email:
--MNI Beijing Bureau; +86 (10) 8532-5998; email:
--MNI Beijing Bureau; +86 10 8532 5998; email:
[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]