MNI China Daily Summary: Wednesday, October 16

EXCLUSIVE:A swap facility and a relending tool for stock buy-backs will boost liquidity in Chinese stock markets which are also likely to be buoyed by further policy stimulus this year together with official encouragement of mergers and acquisitions and a likely relaxation of limits on share allocations for institutional investors, a senior policy advisor told MNI.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY642.4 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net injection of CNY581.4 after offsetting the maturity of CNY61 billion today. There are CNY789 billion MLF mature today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.6367% from 1.5736%, Wind Information showed. The overnight repo average increased to 1.4706% from 1.4157%.

YUAN: The currency weakened to 7.1150 to the dollar from the previous 7.1147. The PBOC set the dollar-yuan central parity rate higher at 7.1191 on Wednesday, compared with 7.0830 set on Tuesday. The fixing was estimated at 7.1210 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 2.1224%, up from the previous close of 2.1075%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.05% to 3,202.95, while the CSI300 index fell 0.63% to 3,831.59. The Hang Seng Index lost 0.16% at 20,286.85.

FROM THE PRESS: The yuan will likely fluctuate between 7-7.3 against the U.S. dollar amid decreasing expectations for Federal Reserverate cuts this year and rising momentum of the so-called Trump trade, Yicai.com reported, citing analysts. China’s central bank is expected to increase the intensity of the countercyclical factor should the yuan face increased selling pressure, the newspaper said. Exporters who previously started forex settlement have adopted a wait-and-see approach to market changes, the newspaper noted. Chinese exporters hold about USD500 billion, with up to USD200 billion likely to be settled should the offshore yuan strengthen below the 7.1 level, according to estimations, the newspaper added.

Chief economists expect China’s GDP to have grown 4.65% during Q3, down from Q2’s 4.7%, according to results from Yicai news agency’s Financial Chief Economist Confidence Index. The headline index reached 50.62 in October, higher than September’s 49.96, as economists expected incremental policies would boost investment and consumption confidence. Participants' average GDP growth forecast for 2024 was 4.88%, with Q4 expanding by 5.0%. Wen Bin, chief economist at Minsheng Bank, expects September’s growth of total retail sales of consumer goods to reach 2.5%, up from 2.1% previously.

China and the U.S. remain close trading partners despite trade frictions, according to Zhang Xiaotao, an economics dean at the Central University of Finance and Economics, who cites recent data showing total trade between the two countries grew 4.2% y/y between January and September, with exports up 4.6% y/y and imports by 2.7%. Zhang said China can address growing global trade tensions by increasing bilateral negotiations and developing trade partnerships with Latin America and Belt and Road members.