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MNI CHINA LIQUIDITY INDEX: Conditions Tighten; Rates Lower

MNI (London)
--MNI Jan China Liquidity Conditions Index 84.6 From 15.4 Dec
     BEIJING (MNI) - Cash demand ahead of the Lunar New Year holiday, along with
tax payments and bond issuance saw liquidity conditions tighten in January, the
latest MNI China Liquidity Survey showed.
     MNI's Liquidity Conditions Index surged to a ten-month high of 84.6 in
January, with 69.2% of the respondents reporting a tightening compared to the
previous month. It was a sharp turnaround in the Index from the latter months of
2019, when the Index stood at 15.4 in December and 12.5 in November.
     The higher the index reading, the tighter liquidity appears to survey
     Many respondents pointed to the holiday cash requirements, with others
pointing to "intensive local government bonds issuance and tax payment in
January". China's local governments plan to issue CNY761.2 billion bonds in
January, according to the Chinabond website.
     The Economy Condition Index slid to 57.7 in January from December's 73.1.
However, overall views of the economy were mixed -- 38.5% of the respondents saw
signs of a pick-up, boosted by the signing of the 'phase 1' trade deal with the
U.S., while 24% remained downbeat over the outlook.
     "The latest data points to the economy picking up and the signing of the
'phase one' deal will help to stabilize external demands," one upbeat trader
     China's GDP grew 1.5% q/q and 6.0% y/y in Q4, as industrial output grew
6.9% y/y in December and 5.7% y/y in 2019.
     Not all are convinced, with one Shanghai fund manager saying the "supposed
6.0% y/y GDP target (for me) is a bit low ... it sounds like the economy is
facing big downward pressure."
     The PBOC Policy Bias Index fell to 38.5 in January from 46.2 in December,
with 92.3% of respondents seeing the policy as "steady", as the central bank
extends the somewhat looser stance seen through the second half of last year.
     The PBOC Guidance Clarity Index fell to 46.2 in January from December's
61.5. Although the vast majority see the PBOC doing a good job on delivering
clear guidance, there are still some gripes over the communications mechanism.
     "(Conditions) suddenly tightened last week especially on Monday, if the
authorities could have done a better communication and guidance in advance, the
would have been less of a panic," one bank trader said.
     The 7-Day Repo Rate Index eased to 34.6 in January from 88.5 in December.
     "The curve will come down as it's at a peak level now, the central bank
will continue injecting money into the market to guarantee a smooth transition
through the week-long holiday," said by a Guangzhou market participant.
     The 7-day weighted average interbank repo rate for depository institutions
(DR007) closed at 2.5708% Tuesday, higher than the policy rate of 2.55%. The
PBOC resumed its open market operation on Jan. 15 after 15 straight days of
     The 10Y CGB Yield Index was down to 54.5 from 69.2 in December, with
respondents seeing three different tendency almost evenly matching each other.
     The MNI survey collected the opinions of 13 traders with financial
institutions operating in China's interbank market, the country's main platform
for trading fixed-income and currency instruments, and the main funding source
for financial institutions. Interviews were conducted Jan. 13 - Jan. 20.
--MNI Beijing Bureau; tel: +86 (10) 8532-5998; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
[TOPICS: M$A$$$,M$Q$$$,MT$$$$,MX$$$$]
MNI London Bureau | +44 203-865-3812 |

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