MNI China Daily Summary: Wednesday, February 1

EXCLUSIVE: Hong Kong and mainland China regulators are set to launch Swap Connect early in the first quarter, allowing foreign access to the USD5 trillion onshore interest rate swaps market and providing investors with hedging tools at a time of heightened volatility in global bond markets, sources told MNI.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY155 billion via 7-day reverse repos with rates unchanged at 2.00%. The operation led to a net drain of CNY292billion after the maturity of CNY447 billion in reverse repos, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 2.0500% from 2.1519% on Tuesday, Wind Information showed. The overnight repo average dropped to 1.6219% from the previous 2.0256%.

YUAN: The currency closed at 6.7410 against the dollar at 16:30pm Beijing time from 6.7517 on Tuesday. The PBOC set the dollar-yuan central parity rate lower at 6.7492, compared with 6.7604 set on Tuesday.

BONDS: The yield on 10-year China Government Bond was last at 2.9075%, down from Tuesday's close of 2.9280%, according to Wind Information.

STOCKS: The Shanghai Composite Index rose 0.90% to 3,284.92, while the CSI300 index was up 0.94% to 4195.93. The Hang Seng Index was up 1.05% to 22072.18.

FROM THE PRESS: Chinese Premier Li Keqiang called for the ramping up of financial support for the expansion of domestic demand, and ensuring the yuan exchange rate remained stable at an adaptive and balanced level to keep the economy performing within a reasonable range, reported Xinhua News Agency. During a visit to the People’s Bank of China on Monday, the premier stressed the importance of further refining the financing environment for the private sector and smaller businesses, and preventing and defusing financial risks. He noted the PBOC should continue to help strengthen consumption, investment and economic structure, and pointed out that the nation's forex reserves had generated good earnings.

China's economy is likely to see a stronger rebound than expected in the first quarter to about 4% as measures stimulating domestic demand take effect, China Business Network reported citing analysts. The latest Purchasing Managers' Index indicated the economy is recovering at a robust pace, particularly for the non-manufacturing sector, which will fuel companies’ confidence in further investment. Given these conditions, analysts predict the central bank may not cut its policy rates, including rates on the medium-term lending facility, but may guide down the five-year loan prime rate this quarter. However, weak external demand will drag down exports, which will pressure economic performance, they said.

China's new loans are expected to reach a fresh record of over CNY4 trillion in January as supportive policies boost the infrastructure and manufacturing sectors, while lenders have also enhanced support to developers, analysts told Securities Daily on Wednesday. Thanks to a cut in the reserve requirement ratio last December and increased injections via the medium-term lending facility (MLF) in the past two months, long-term liquidity is ample for additional credit. Short-term credit has also been bolstered by a recovery in firms’ activity and household consumption, they said. But mortgage loans may still be soft considering the recovery of the property market is still to come, they predicted.