MNI China Daily Summary: Wednesday, July 11

     TOP NEWS: China will take "necessary countermeasures" as before against the

U.S. for its acceleration and escalation of tariff sanctions, the Ministry of

Commerce said on its website. The U.S. plan to add an additional 10% tariffs on

$200 billion worth of Chinese products was "completely unacceptable" and China

felt "shocked", the ministry said. 

     TOP NEWS: European companies may see profits drop as the trade war between

the world's two largest economies hits their operations, the EU Chamber of

Commerce in Beijing said. "Blunt tariff instruments affect everything," Jacob

Gunter, Policy and Communications Coordinator at the Chamber, told MNI.

     YUAN: Yuan crosses are looking bearish as the CNH comes under renewed

pressure from the escalating trade war. While USDCNH remains some way off its

July 3 peak, EURCNH is at new cyclical highs and is breaking through its

downward sloping resistance line from the August 2017 peak. The yuan looks set

to continue weakening on a trade-weighted basis as the ongoing collapse in

interest rate expectations weighs on the currency.

     LIQUIDITY: The PBOC skipped open market operations (OMO) for a third

consecutive day, stating that a relatively high level of liquidity can absorb

maturing reverse repos. That resulted in a net drain of CNY40 billion, as the

same amount of reverse repos matured today. CFETS-ICAP's money-market sentiment

index closed at 38 on Tuesday, remaining unchanged from Monday.

     MONEY MARKET RATES: Benchmark 7-day deposit repo average rose to 2.6568% on

Wednesday from 2.6451% on Tuesday; Overnight average increased to 2.3928% from

2.2953% on Tuesday: Wind Information.

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

3.5150%, down from the previous close of 3.5450%, according to Wind Information.

     STOCKS: Shares in Shanghai slumped after closing higher for three

consecutive days, due to the new U.S. list of proposed tariffs. Shanghai

Composite Index closed 1.76% lower at 2,777.77. Hong Kong's Hang Seng Index

declined 1.57% to 28,231.54. The 30-day correlation between USDCNY and Chinese

stocks (using the CSI 300) sits at the highest level on record at 0.9786.

Previous occurrences of the correlation approaching 1.00 have been somewhat

short-lived, with correlations edging down amid a trend change in one or both of

the assets.

     FROM THE PRESS: China is weighing countermeasures to offset the negative

shock of the new U.S. $200 billion tariff sanctions, Xinhua News Agency

reported, citing Ma Jun, a member of the PBOC monetary policy committee.

Uncertainties remain as U.S. plans a public hearing in August, Xinhua cited Ma

as saying. China is evaluating the impact of the trade war on respective

companies and industries to decide on the countermeasures, Xinhua said citing

Ma.

     The yuan has been overall stable against a basket of currencies despite

two-way fluctuations against the U.S. dollar,  Financial News said citing

economists including E Yongjian, an analyst with BOCOM. China's solid economic

fundamentals will support stable FX reserves and allow the yuan to be more

flexible, the newspaper said. The yuan has been more favored as both a payment

and reserve currency, with three consecutive quarters of increases in the

proportion of the world's forex reserve, the newspaper said citing IMF data.

     China shouldn't tighten its approach for monetary policy, China Securities

Journal reported citing Sheng Songcheng, head of the Financial Survey and

Statistics Department of the PBOC. With the marginal easing of deleveraging, the

growth of M2 this year will likely exceed 8.5%, higher than 8.1% last year, the

newspaper said citing Sheng. This year's fiscal policy has been tighter as the

deficit ratio is expected to decline by 0.4 percentage point to 2.6%, Sheng

said, according to the Daily.

     China's state-owned asset managers must shift focus on managing financial

assets from controlling the companies, Economic Information Daily said in a

commentary. China will enhance the strategic layout of state-owned financial

asset and boost the vitality of financial institutions, said the newspaper,

owned by the official Xinhua News Agency. China will deepen financial

regulations to ensure higher quality development, the newspaper said. 

--MNI Beijing Bureau; +86 (10) 8532-5998; email: sherry.qin@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]