MNI China Daily Summary: Tuesday, September 18

     TOP NEWS: Beijing looks set to retaliate against Washington's latest trade

move, which will see the imposition of tariffs on a further $200bn in Chinese

goods as of Sep 24, the head of the European Union Chamber of Commerce in China

told MNI. "Unfortunately, it's too likely" that China will retaliate in a

tit-for-tat fashion, including via a devaluation of its currency, Mats Harborn

told MNI on the sidelines of a press event Tuesday. Other retaliatory measures

will likely include direct restrictions on U.S. companies operating in China and

more onerous customs clearance procedures for U.S. firms, Harborn said. He urged

Beijing not to continue with retaliation, but to instead take measures to make

China's economy more open.

     POLICY: Risk-off flows have eased somewhat, with T-Notes back from session

highs, the Antipodean currencies up from session lows vs. USD, and USD/JPY

showing little movement. Mainland Chinese stocks traded in positive territory,

perhaps aided by PBOC OMO injections, while the Nikkei added 0.8% after the long

holiday weekend. Risk is perhaps being aided by the fact that China hasn't

retaliated immediately to the latest round of U.S. tariffs, although reports

suggest policymakers are set to hold a meeting to formulate a response. There

have also been positive comments out of China regarding long-term relations with

the U.S.

     LIQUIDITY: The PBOC injected CNY150bn and CNY50bn via its 7-day and 14-day

reverse repos respectively on Tuesday, resulting in a net injection of CNY200bn,

as no reverse repos matured today, according to Wind Information. A total of

CNY270bn in reverse repos will mature this week. CFETS-ICAP's money-market

sentiment index closed at 60 on Monday, up from 35 on Friday.

     YUAN: The yuan appreciated to 6.8572 per USD from Monday's close of 6.8690.

The PBOC set the yuan central parity rate at 6.8554 Tuesday, compared with

6.8509 on Monday.

     YUAN: EURCNH decisively broke above resistance just ahead of 8.0 as of

12:45pm Beijing time, with the pair trading at four-year highs at 8.033. The 8.0

level now turns to support, while the next significant level of resistance is

not until 8.50. GBPCNH has also pushed into fresh multi-year high territory

after overcoming the 9.0 level, breaking above the Jan 25 high earlier today,

before dropping back slightly to 9.0360. The next level of resistance comes in

at 9.060, marking the Feb 2016 lows. A break above here would provide a major

bullish signal and target a move back to pre-Brexit highs for the pair.

     YUAN: USDCNH was trading at 6.8833 as of 9:28am Beijing time following the

PBOC's fix, with the pair retracing an earlier spike above 6.89 to keep within

its recent range. Following the U.S. tariff decision, risk-off appetite appears

to be contained in China, with stocks holding their recent lows and interest

rate swaps showing little movement. Given the sharp weakness seen in U.S.

equities in late trading, Chinese markets are showing some resilience,

suggesting a potential 'buy the news' scenario after months of 'selling the

rumour.'

     MONEY MARKET RATES: The benchmark seven-day deposit repo average rose to

2.7111% from 2.6209% Monday, while the overnight average increased to 2.6649%

from 2.4503%: Wind Information.

     BONDS: The yield on the benchmark 10-year China Government Bond was last at

3.6375%, up from Monday's close of 3.6350%, according to Wind Information.

     STOCKS: The Shanghai Composite Index closed 1.82% higher at 2,699.95. Hong

Kong's Hang Seng Index closed up 0.56% at 27,084.66.

     FROM THE PRESS: Experts expect the PBOC to implement another reserve

requirement ratio cut soon, as part of ongoing efforts to inject liquidity into

the financial system, the China Securities Journal reported. The PBOC's

injection on Monday of CNY265bn in one-year medium-term lending facilities (MLF)

surprised the market, the newspaper said, as liquidity was considered to be

abundant following MLF injections earlier this month. The latest injection is

designed to fill a potential liquidity gap in the near future, the report said.

     Chinese land sales are cooling, as property market controls weigh on

financing and confidence in the sector, the Securities Daily reported. As of

August, 807 land auctions have failed this year, with 795.4bn square metres of

land unsold -- 7.3 times the number of failed cases last year, the newspaper

said, citing data from the China Index Academy. The majority of failed auctions

took place in Tier-1 and Tier-2 cities, the report added, citing analysts.

     Chinese Vice Premier Hu Chunhua has urged local governments to implement

more measures to stabilise employment amid emerging economic problems, the

official People's Daily reported. Greater efforts should be made to support

innovative sectors of the economy, in order to boost job creation, Hu said,

according to the newspaper.

--MNI London Bureau; +44 207-862-7489; email: ukeditorial@marketnews.com

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