MNI China Daily Summary: Tuesday, May 21

POLICY: Authorities in China see the manufacturing sector continuing its upward recovery, Li Chao, spokesperson for the National Development and Reform Commission told reporters. Li noted industrial firms saw profits rise 4.3% y/y in Q1, the third consecutive quarter of growth, while the manufacturing PMI had held above 50 points in April, indicating firms have stable confidence in future market development.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY2 billion via 7-day reverse repo, with the rates unchanged at 1.80%. The operation has led to no change to the liquidity after offsetting the CNY2 billion maturity today, according to Wind Information.

RATES: China's seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 1.8470% from 1.8085%, Wind Information showed. The overnight repo average rose to 1.7639% from 1.7240%.

YUAN: The currency weakened to 7.2370 from 7.2320 at Monday's close. The PBOC set the dollar-yuan central parity rate higher at 7.1069, compared with 7.1042 set on Monday. The fixing was estimated at 7.2349 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 2.3103%, up from Monday's close of 2.3095%, according to chinamoney.com.cn.

STOCKS: The Shanghai Composite Index lost 0.42% to 3,157.97 while the CSI300 index edged down 0.40% to 3,676.16. The Hang Seng Index fell 2.12% to 19,220.62.

FROM THE PRESS: Foreign investors may further increase their allocation to China’s bond market, as the yuan faces less depreciation pressure amid weakening overseas economic data and China may have greater easing space in monetary policy, expected to drive short-term yields down, Shanghai Securities News reported citing Xu Zhaoting, general manager at Deutsche Bank’s China Investment Banking Department. Foreign institutional investors have increased their holdings of Chinese bonds for eight consecutive months to April, with a net purchase of domestic bonds and stocks recording CNY124.7 billion and CNY45.1 billion. By end-April, foreign institutions held CNY4.05 trillion of bonds in China’s interbank market, accounting for about 2.9% of the total custody volume.

China will take 30 measures to expand export credit insurance aimed at accelerating international trade, the Ministry of Commerce has announced. Authorities will ensure good use of advance payment insurance and loss compensation to help foreign trade momentum, especially for SMEs, the notice said. Exporters will benefit from enhanced industry underwriting capabilities, and policy will look to enhance trade with Belt and Road nations. (Source: Yicai)

Banks may lower the LPR later this year due to China's low inflation, but slower monetary easing in developed economies could delay action, says Mingming, chief economist at CITIC Securities. Wen Bin, chief economist at Minsheng Bank, added banks faced declining net interest margins, making a short-term LPR cut unlikely. Banks’ decision to hold the LPR steady this month will help alleviate arbitrage behaviour and improve the efficiency of capital operation, Wen added. (Source: Securities Daily)