MNI China Daily Summary: Wednesday, May 15

     TOP NEWS: China's macroeconomic indicators in April failed to match March's

apparent strengths or market forecasts, raising speculation for further stimulus

to shore up sentiment as an escalated trade war with the U.S. stirs up unease.

Retail sales slowed to 7.2% y/y and hit a 16-year low, missing 8.6% forecast

polled by MNI and decelerating from March's 8.7%. While industrial output fell

sharply to 5.4% y/y from a four-and-a-half-year high in March, below 6.3%

projected by analysts polled by MNI. Fixed-asset investment (FAI) edged down to

6.1% y/y in the Jan-April period, missing 6.4% median forecast in an MNI survey

and lower than the 6.3% recorded in the first three months.

     LIQUIDITY: The People's Bank of China (PBOC) skipped open market operations

for the fifth trading day, resulting in a net drain of CNY10 billion with the

same amount of reverse repos maturing, according to Wind Information. The PBOC

will cut the reserve requirement ratio for county-level rural commercial banks

to 8%. The reduction will be implemented in three phases, and the first phrase

today is expected to release about CNY100 billion in long-term funds, the PBOC

said.

     RATE: The 7-day weighted average interbank repo rate for depository

institutions (DR007) fell to 2.4000% from Tuesday's close of 2.6288%, Wind

Information showed. The overnight repo average increased to 2.5300% from

Tuesday's 2.4056%. 

     YUAN: The Chinese currency strengthened to 6.8736 against the dollar from

Tuesday's close of 6.8854. The PBOC set the dollar-yuan central parity rate

weaker at 6.8649, compared with 6.8365 set on Tuesday.

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

3.2700%, down from Tuesday's close of 3.2800, according to brokers.

     STOCKS: The benchmark Shanghai Composite Index rose 1.91% to 2,938.68, with

liquor, fuel cell and 5G stocks leading the gain, according to Wind Information.

Hong Kong's Hang Seng Index increased 0.52% to 28,268.71.

     FROM THE PRESS: Tariff hikes by the U.S. will have limited impact on the

Chinese economy given that China has been diversifying its trade partners and

tariffs would be passed along in traded goods, China Business News reported

citing Sheng Songcheng, the former director of the Survey and Statistics

Division of the PBOC. China's exports to the U.S. fell by 13.9% y/y in Q1. If

this decline continues throughout the year, exports to the U.S could fall by

$75.1 billion in 2019 which may cause the unemployment of 3.92 million people,

said Sheng.

     The yuan will be more volatile in the future, as more foreign capital flows

through China and external headwinds weigh on domestic capital and the forex

market, said 21st Century Business Herald citing Guan Tao, former director of

the International Payments Department at SAFE. Though external changes will make

it more difficult to execute monetary policy, policymakers should still be more

domestically focused, Guan said.

     The PBOC has shown its intention to stabilize market expectations by

conducting a large MLF operation yesterday while another MLF matured, the China

Securities Journal said. In the near term, the tax season will be the major

factor draining liquidity, along with the loss of forex funds, the Journal said,

citing unnamed analysts.

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

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

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