MNI China Daily Summary: Wednesday, July 26

EXCLUSIVE: Chinese interbank liquidity eased in July breaking a five-month run of tightening as banks released funds following end of H1's macro-prudential assessment, with traders expecting The People's Bank of China (PBOC) to maintain a loose environment to support the economy after economic sentiment dropped again, the latest MNI Liquidity Conditions Index shows.

EXCLUSIVE: China will hold off from major fiscal stimulus for the second half of the year, with authorities concentrating on making existing programmes more efficient in order to encourage market forces, given that the economy remains on track to meet its 5% growth target for 2023, advisors and analysts told MNI.

POLICY: Policymakers at all levels should improve tax and financial support measures for SMEs and bring vitality back to the sector, according to Zhang Guoqing, vice premier of the State Council.

LIQUIDITY: The PBOC conducted CNY104 billion via 7-day reverse repos with the rate unchanged at 1.90%. The operation has led to a net injection of CNY79 billion after offsetting the maturity of CNY25 billion reverse repo today, according to Wind Information. The operation aims to keep month-end liquidity stable, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.8435% from 1.8571%, Wind Information showed. The overnight repo average decreased to 1.4547% from the previous 1.5136%.

YUAN: The currency weakened to 7.1514 against the dollar from 7.1365 on Tuesday. The PBOC set the dollar-yuan central parity rate lower at 7.1295, compared with 7.1406 set on Tuesday. The fixing was estimated at 7.1355 by BBG survey.

BONDS: The yield on 10-year China Government Bonds was last at 2.7000%, down from Tuesday's close of 2.7200%, according to Wind Information.

STOCKS: The Shanghai Composite Index fell 0.26% to 3,223.03 while the CSI300 index decreased 0.21% to 3,907.01. The Hang Seng Index was down 0.36% to 19,365.14.

FROM THE PRESS: China will further deepen capital market reform and opening up in H2, according to the China Securities Regulatory Commission. At a recent meeting, China’s top securities regulator said authorities would develop the real-estate investment trust market, build the Beijing Stock Exchange and support private firms to achieve high-quality growth through the capital markets. Policymakers will further stimulate the capital market to better serve high-quality development and work to maintain financing channels for real-estate companies. (Source: 21st Century Herald)

The single-day net purchase of northbound funds near CNY19 billion hit a new high this year on Tuesday, along with major A-share indexes moving higher across the board as the Politburo meeting this week largely boosted confidence in the economic outlook. It also marks the sixth single-day net purchase record since the opening of the Shanghai and Shenzhen Stock Connect. Meanwhile, the falling US dollar index and stronger yuan will fuel a return of overseas funds. The net inflow of northbound funds this year is expected to be about CNY300 billion, after reaching about CNY200 billion so far, said Meng Lei, China Equity Strategist at UBS Securities. (Source: Shanghai Securities News)

Hong Kong Monetary Authority Chief Eddie Yue remains confident in the Mainland’s mid- and long-term economic growth during a recent visit to Beijing. Yue said Hong Kong can facilitate the yuan’s internationalisation in accordance with the orderly development of China's economy. Investors should feel confident in the Hong Kong dollar currency board despite the recent carry trade driving funds towards US dollar because authorities had designed the system to deal with a free flow of funds, Yue said. Investors will increase demand for CNY in future due to the safe-haven status and low settlement costs. (Source: Yicai)