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ASIA

Coming up in the Asia-Pac session on Tuesday:

USDCAD TECHS

Corrective Bounce

AUDUSD TECHS

Bearish Threat Following Friday’s Sell-Off

EURJPY TECHS

Finds Support Below The 50-Day EMA

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DATA: China's exports gained 22.0% y/y to USD325.53 billion in November, extending a surge that had lasted for more than a year, according to the data released on Tuesday by the China General Administration of Customs. November trade surplus narrowed to USD71.71 billion from USD84.54 billion in October. Imports accelerated to 31.7% y/y at USD253.81 billion.

POLICY: China and the European Union should overcome any issues with the Comprehensive Agreement of Investment, with the outcome of the next round of negotiations between China and the U.S. possibly encouraging Brussels to push forward the deal, said Huo Jianguo, senior fellow with Center for China & Globalization (CCG) at a forum.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rates unchanged at 2.2%. The operation has led to a net drain of CNY90 billion after offsetting the maturity of CNY100 billion 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 2.1519% from Monday's close of 2.0888%, Wind Information showed. The overnight repo average rose to 2.1302% from 1.8155% on Monday.

YUAN: The currency strengthened to 6.3678 against the dollar from Monday's close of 6.3715. The PBOC set the dollar-yuan central parity rate higher at 6.3738 on Tuesday, compared with 6.3702 set on Monday.

BONDS: The yield on 10-year China Government Bonds was last at 2.8975%, up from Monday's close of 2.8800%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.16% to 3,595.09, while the CSI300 index gained 0.60% to 4,922.10. The Hong Kong's Hang Seng Index rallied 2.72% to 23,983.66.

FROM THE PRESS: Chinese President Xi Jinping chaired a key Politburo meeting on Monday, which set the tone for a stable economic growth next year, according to a Xinhua News Agency readout. The meeting urged for "seeking progress while emphasizing stability," backed by more proactive fiscal policies combined with prudent and vital monetary policies, Xinhua said. The meeting elevated the role of consumption, calling for implementing the strategy of expanding domestic demand, with increased consumption and effective investment. The meeting also expressed support for a healthy housing industry and meeting buyers’ reasonable demand, and avoided repeating previous vows to crack down on housing speculation. MNI notes that the December Politburo meeting on the economy will soon be followed by the Central Economic Work Conference to flesh out detailed planning for next year.

China’s December Loan Prime Rate may be lowered after the People’s Bank of China released as much as CNY1.2 trillion yuan by cutting banks’ reserve requirement ratios, the 21st Century Business Herald said. The People's Bank of China sets the LPR on the 20th of each month. The amount released through the RRR cut, taking place on Dec. 15, will be CNY200 billion more than the previous cut in July, and it comes mostly from targeted cuts that facilitate SME lending, the newspaper said. The cut was made as the downward pressure economy demanded monetary policy response, as the yuan faces little risk of depreciation and as the falling prices of coal and crude oil ease pressure on inflation, it said.

The Chinese yuan is expected to remain stable and strong, likely around 6.3 against the U.S. dollar in the first half of 2022, supported by strong exports and supply chains, Yicai.com reported citing market participants. Monday's 50 bps RRR cut isn't expected to weaken its strength against the dollar despite a possible narrowing in interest rate spread, it said. Liquidity stimulus may counter some of the downward pressure on the economy and support the yuan in turn, the newspaper said. Should China continue pursuing “zero Covid”, its high trade surplus may last longer, which has become the dominant factor that supports the yuan, along with capital inflow into China’s equity and bond markets, the newspaper said.

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