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BLOCK, Large 3Y Midcurve Put Condor

     TOPS NEWS: U.S. President Donald Trump on Monday reaffirmed his friendship
with Chinese President Xi Jinping but also signaled that his coming trade talks
with China could be contentious unless China agreed to "reciprocal" trade
concessions. Trump, speaking a a press conference in Tokyo alongside Japanese
Prime Minister Shinzo Abe during the first leg of his five-nation Asia-Pacific
tour, said in reply to a question on China that the United States would take
"very strong action" that would "happen very soon" against countries that didn't
agree on trade deals with the United States.
     POLICY: The Chinese government is betting that development of the
residential rental property market will mitigate the many serious challenges
facing the domestic property market while providing a boost to economic growth
in coming years, property market experts told MNI. With Xi and other officials
stressing their view that "houses are for living in, not for speculating on,"
the development of the rental housing sector may help provide a boost that is
expected to offset some of the negative impact of government policies meant to
curb housing price growth.
     DATA: China's current account surplus fell to $37.1 billion (CNY247.2
billion) at the end of the third quarter, the State Administration of Foreign
Exchange (SAFE) announced Monday, down 27.1% from $50.9 billion at the end of
the second quarter. SAFE said the capital and financial accounts deficit, which
includes net error and omission numbers, was also $37.1 billion, compared with a
$400 million deficit during the April-July period. The surplus for the consumer
goods trade was $121 billion in the third quarter, compared with $132.1 billion
in the second, while the deficit in the services trade was $68.1 billion,
compared with a $74.4 billion deficit in the second quarter.
     RATES: Money market rates were higher on Tuesday after the PBOC drained a
net of CNY80 billion via open-market operations. The seven-day repo average was
last at 2.7572%, compared with Monday's average of 2.7479%. The overnight repo
average was at 2.5394%, compared with Monday's 2.4593%.
     RATES: The People's Bank of China injected CNY80 billion in seven-day
reverse repos, CNY40 billion in 14-day reverse repos and CNY60 billion in 63-day
reverse repos via open-market operations Tuesday. The PBOC did not give a
further explanation of its operations this morning. This resulted in a net drain
of CNY80 billion for the day, as a total of CNY260 billion in reverse repos
matured on Tuesday. The CFETS-ICAP money-market sentiment index ended at 38 on
Monday, up from 30 at Friday's close. The lower the reading, the better the
liquidity conditions in the interbank market.
     YUAN: The yuan rose against the U.S. dollar on Tuesday after the People's
Bank of China set a stronger daily fixing. The yuan was last at 6.6252 against
the U.S. unit, rising 0.13% compared with the official closing price of 6.6339
on Monday. The People's Bank of China set the yuan central parity rate against
the U.S. dollar at 6.6216 Tuesday, stronger than Monday's 6.6247.
     BONDS: The yield on benchmark 10-year China government bonds was last at
3.8925%, up from the previous close of 3.8650%, according to Wind, a financial
data provider.
     STOCKS: Stocks rose, led higher by the agricultural and insurance sectors.
The benchmark Shanghai Composite Index closed up 0.75% at 3,413.57. Hong Kong's
Hang Seng Index was 1.34% higher at 28,979.87.
     FROM THE PRESS: China needs to deepen reform of and further open its
financial sector to promote the internationalization the yuan, China Banking
Regulatory Commission chief economist Ba Shusong wrote in a long article
published Tuesday by the Financial News, a newspaper supervised by the People's
Bank of China. Restrictions on securities investment and capital outflows should
be reduced, he said, while a new index measuring macroeconomic fundamentals
should be considered and introduced into the pricing of the yuan central parity
rate. He also proposed further expanding the Chinese financial market's
connections with overseas markets to provide higher-quality risk pricing
platforms and enhance the yuan's usability as an investment currency. New types
of investment instruments should be introduced for foreign investors, such as
new commodity, stock and currency derivatives and other risk management tools,
he noted. Ba stressed the restrictions on foreign investment entering China's
financial market need to be reduced so that more foreign competition can boost
the efficiency of Chinese financial institutions.
     China should institute a property tax, but the introduction should be
gradual so as not to cause too great a shock to the market, the Financial News
said in a commentary on Tuesday. The newspaper noted Chinese Finance Minister
Xiao Jie's comments that the government must analyze and interpret President Xi
Jinping's 19th Communist Party Congress Report that the creation and
implementation of a property tax should be advanced based on the principle of
"create the law first, fully authorize power to related regulators, and advance
step by step." Xiao said China should tax commercial and residential property
units based on their value, but at the same time reduce taxes on property
construction and sales transactions to create a modern property tax system.
(Financial News)
     A further tightening of regulation to control financial risks is expected
ahead, the Economic Information Daily, a newspaper under the official Xinhua
News Agency, reported Tuesday, citing unidentified experts. China would stick to
its "two-pillar macro-control framework of monetary policy and macro-prudential
policy," the experts told the newspaper, arguing financial regulators should
better coordinate their efforts to fill regulatory voids caused by new
cross-sector financial businesses. New regulations of the wealth management
sector and banks' wealth management businesses would soon be issued, given the
People's Bank of China is leading relevant regulators to study and work toward
creating a standardized rule to manage the wealth management sector, the experts
said. (Economic Information Daily)
     A deepening of reform is needed so China can speed up the process of
transforming itself into an innovative economy, Ma Mingjie, the deputy head of
the innovation development research department at the Development Research
Center of the State Council, told the 21st Century Business Herald in a report
published Tuesday. The relationship between the government and the market needs
to be clear to create fair competition and let market forces perform their
decisive function, Ma said. China also needs to further open up and participate
in international innovation networks, introduce global technology and talent to
China and at the same time "go abroad" to improve innovation, Ma added. (21st
Century Business Herald)
--MNI Beijing Bureau; +86 (10) 8532-5998; email:
--MNI Beijing Bureau; +86 (10) 8532-5998; email:
[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]