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     TOP NEWS: China's central bank may not sit still and tolerate the yuan's
further plunge, as it views the current depreciation an overshoot, a source
close to the PBOC told MNI Tuesday. "The yuan's depreciation has overshot," the
PBOC source told MNI. "Although a weak yuan benefits China against the backdrop
of Sino-US trade spat, it doesn't mean the central bank would stand by and
tolerate a plunge." 
     TOP NEWS: The People's Bank of China (PBOC) should further fine-tune its
monetary policies, including applying more targeted cuts of the reserve
requirement ratios, to meet the objectives of deleveraging and shepherding the
economy, Li Daokui, a former member of the central bank's Monetary Policy
Committee, told MNI.
     TOP NEWS: CNH continues to trade near its daily high amid rumors of state
intervention to cap weakness. While the People's Bank of China (PBOC) is likely
happy with the boost that a weaker yuan will provide to provide to exports, it
will not want to see the pace of the yuan's collapse continue as this could
further undermine confidence in the currency and create a shock for the domestic
     YUAN: ANZ's Khoon Goh notes that the "Having taken out the 6.70 level,
USD/CNH looks to be headed towards RMB6.75 on the way to RMB6.80. There are no
signs of active intervention, suggesting authorities are ok with yuan weakness
so far. This will keep pressure on Asia FX." Reuters sources have suggested that
they have seen "major state-owned Chinese banks swapping yuan for dollars in
forwards and immediately selling them into spot market, supporting the yuan."
     LIQUIDITY: The PBOC skipped its open market operations for a second
consecutive day on Tuesday, stating on its website that a relatively high level
of liquidity can absorb maturing reverse repos. That resulted in a net drain of
CNY150 billion, as the same amount of reverse repos matured today, according to
the PBOC. CFETS-ICAP's money-market sentiment index closed at 32 on Tuesday,
down from 39 on Monday. 
     MONEY MARKET RATES: Benchmark 7-day deposit repo average fell to 2.6435% on
Tuesday from 2.6884% on Monday; Overnight average decreased to 2.34396% from
2.4388% on Monday: Wind Information.
     BONDS: The yield on benchmark 10-year China Government Bond was last at
3.4950%, up from the previous close of 3.4625%, according to Wind Information.
     STOCKS: Shares rebounded slightly in Shanghai after sharp declines
yesterday. Shanghai Composite Index closed 0.41% higher at 2786.89. Hong Kong's
Hang Seng Index fell 1.44% to 28538.94. The Hang Seng has come under heavy
pressure following the elongated holiday weekend, losing over 3.00% as it caught
up to the tumult that was seen in the region on Monday. The consumer
discretionary & staples sectors have led the index lower, with energy and health
care names not far behind. China's CSI 300 lost around 1.5%, with CNY worry and
protectionism hanging over the space.
     FROM THE PRESS: Liquidity is expected to remain at a reasonable and
sufficient level in July, but it is necessary to be aware of uncertainties on
money supply, China Securities Journal reported, citing an anonymous expert. A
large number of liquidity facilities of the PBOC will mature at the beginning of
the month, including CNY510 billion reverse repos maturing this week, said the
newspaper. That said, the net drain of funds may lower the impact of RRR cuts on
short-term liquidity, the newspaper noted. July's large tax payment in the
middle of the month may also tighten the money supply, the newspaper.
     The total sales of the top 100 real estate enterprises reached about CNY4.6
trillion in the first six months, marking a 36.5% year-on-year growth, reported
Shanghai Securities News. 25 real estate enterprises reported sales of over
CNY50 billion in the first half of the year and are expected to pass the CNY100
billion threshold by the end of the year, said the newspaper. Real estate
enterprises accelerated inventory turnover and lowered prices to increase the
sales in the second quarter, making the highest monthly sales so far, the
newspaper noted. The concentration ratio of real estate industry rose
significantly; that said, market resources and market shares will be dominated
by the big real estate brands, the newspaper added.
     Banks will establish financial asset investment companies to implement
debt-to-equity swaps, according to a new series of regulatory measures published
by China Banking Regulatory Commission (CBRC), reported Financial News.
Financial asset investment companies are allowed to channel funds through
financial bonds, bond repurchases and interbank borrowing, said the newspaper.
The credit risk weight of the single debt-to-equity swap program will be 150%,
aligned with the standard of four major assets management companies. After the
PBOC released CNY500 billion to support the debt-to-equity swap program on June
24, these new regulatory measures will further expand sources of capital and
ease capital pressure, noted the newspaper.
--MNI Beijing Bureau; +86 (10) 8532-5998; email:
--MNI Beijing Bureau; +86 10 8532 5998; email:
[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]

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