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MNI (London)
     TOP NEWS: The People's Bank of China (PBOC) injected CNY70bn via its 7-day
reverse repos and CNY30bn via its 14-day reverse repos on Tuesday, resulting in
a net injection of CNY90bn as a total of CNY10 bn reverse repos matured today,
according to a statement on the PBOC's website. CFETS-ICAP's money-market
sentiment index closed at 47 on Monday, significantly up from 37 on Friday.
     YUAN: USDCNH continues to trade higher than USDCNY and has closed above it
for the past 20 consecutive days, the longest streak since October 2016. This,
combined with the still-elevated level of implied option volatility on USDCNH,
suggests widespread market expectations of further yuan weakness.
     DATA: China's National Bureau of Statistics (NBS) released house price data
for 70 major cities today. Excluding subsidized units, average new home prices
accelerated in June on both a monthly and yearly basis. On the month, prices
increased by 1.1%, accelerating from 0.8% in May and marking the biggest monthly
gain since October 2016. On a yearly basis, new home price growth came in at
5.8% -- up from 5.4% in May, and the highest rate of growth in five months, MNI
calculations show.
     MONEY MARKET RATES: The benchmark 7-day deposit repo average fell to
2.6483% on Tuesday from 2.6714% on Monday; the overnight average increased to
2.5669% from 2.5395% on Monday: Wind Information.
     YUAN: The yuan opened at 6.6870 against the U.S. dollar on Tuesday,
slightly weaker than yesterday's official close of 6.6838 and also weaker than
today's central parity rate of 6.6821 set by the PBOC. The PBOC has set the
fixing weaker for seven of the past ten trading days.
     BONDS: The yield on the benchmark 10-year China Government Bond was last at
3.4800%, remaining unchanged from the previous close, according to Wind
Information.
     STOCKS: Shares in Shanghai extended losses after oil prices dropped by more
than 4% overnight. The Shanghai Composite Index fell below the 2800-mark again,
closing 0.57% lower at 2798.13. Hong Kong's Hang Seng Index fell 1.22% to
28192.13. The 30-day rolling correlation between the CNH and the SCI 300
continues to decline from its peak but remains very high at 0.95. Any meaningful
reversal in USDCNH would likely benefit stocks, particularly H-shares, given
that they are priced in HKD.
     FROM THE PRESS: The yuan is unlikely to weaken below the 7.0 level, as
China's economy continues to be resilient, China Securities Journal reported,
citing experts. It is nonetheless still necessary to be cautious of the
potential impacts of irrational market expectations, the Daily said. The recent
depreciation of the yuan against the U.S. dollar has been driven by both the
slowdown in China's economic growth and market expectations, the Journal added,
citing Sheng Songcheng, former Director General of the Financial Survey and
Statistics Department under the PBOC. With the liberalization of the exchange
rate, the PBOC is more tolerant of short-term fluctuations, but it will not
hesitate to step in when necessary, the Journal reported, citing experts.
     China should fine-tune its fiscal and monetary policies in the second half
of the year, said Liu Yuanchun, Vice President of Renmin University in an
interview with the 21st Century Business Herald. With fiscal expenditure
expected to accelerate in the second half of the year, local governments should
invest in more projects and adjust special transfer payments, Liu said. However,
amid the decline in the overall savings rate, an over-reliance on fiscal policy
could result in credit overdrafts for local governments, Liu cautioned. Monetary
policy, meanwhile, should return to a neutral stance, as M2 and social financing
data are slightly tight, he added.
     The National Development and Reform Commission (NDRC), along with other
government agencies, has released a statement to say that the government will
help to boost the real economy in order to stabilize employment, according to
Xinhua News Agency. Specifically, the government plans to support enterprises
focusing on industrial upgrading and advancing product technology, said Xinhua.
It encourages enterprises to take advantage of employment subsidies to
compensate workers affected by industry structural adjustment and trade
frictions. The statement adds that China should accelerate the transformation of
traditional industries and create more high-quality employment opportunities,
Xinhua reports.
--MNI Beijing Bureau; +86 (10) 8532-5998; email: sherry.qin@marketnews.com
--MNI London Bureau; +44 207-862-7489; email: ukeditorial@marketnews.com
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

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