MNI CHINA LIQUIDITY SURVEY: Ample Liquidity; Economy Improving

--MNI Nov China Liquidity Conditions Index 15.4 From 12.5 Nov

     BEIJING (MNI) - Liquidity conditions remained loose in December with fewer

maturing repos and a light tax payment month, the latest MNI China Liquidity

Survey showed.

     MNI's Liquidity Conditions Index stood at 15.4 in December, little changed

from 12.5 in November, with 76.9% of the respondents reporting an ample supply

of cash. It was the lowest end-year reading for the Index since 2014.

     The higher the index reading, the tighter liquidity appears to market

participants.

     "(Liquidity condition) have been ample for a time and will last for another

month or so with the holiday season coming when the authorities usually inject

more into the market," a southeast coastal city bank trader told MNI.

     The central bank skipped reserve repo operations for 12 consecutive trading

days in December (20 in total) due to "reasonably ample" liquidity conditions,

before injecting CNY 200 billion via 7- and 14-day reverse repos and cutting the

14-day rate by 5 bps on Dec 18.

     The PBOC injected a total CNY25.25 billion into the system via the

Medium-term Lending Facility (MLF) on Dec 6 and Dec 16.

     --UNEXPECTED IMPROVING ECONOMY

     The Economy Condition Index jumped to 73.1 from November's 25.0, the second

highest reading this year, boosted by improving data and a brighter outlook for

the trade talks with the U.S. A total 53.8% of respondents thought the economy

had shown signs of pickup, although downside pressure remained.

     "Recent data pointed to the economy bottoming out, and the agreement

between China and the US in phase one talk will help the recovery of production

activity," said a trader based in Nanjing.

     Industrial output grew an unexpected 6.2% y/y in November, beating

expectations. Retail sales rose 8.0% y/y -- faster than the 7.2% y/y reading in

November.

     --STABLE BIAS, CLEAR GUIDANCE

     The PBOC Policy Bias Index bounced to 46.2 in December from 25.0, with

76.9% of the respondents seeing policy as "steady", the highest since April.

     "The PBOC is monitoring the market closely now, and is managing the

liquidity via its open market operation," said a Guangzhou commercial bank

trader.

     The PBOC Guidance Clarity Index stood at 61.5 in December, slipping from

66.7 in November, underlining the clear guidance expressed by the authorities.

     --RISING RATES

     The 7-Day Repo Rate Index rose to 88.5 in December, sharply up from 41.7 in

November, with over three quarters (76.9%) respondents forecasting a rising

curve due the end-month effect.

     The 7-day weighted average interbank repo rate for depository institutions

(DR007) closed at 2.4964 Monday (Dec 16), the 11th trading day below the policy

rate which is 2.55%.

     The 10Y CGB Yield Index was up to 69.2 in December, following 61.1 in

November, the third consecutive month above 60.

     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 Dec 9 - Dec 16.

--MNI Beijing Bureau; tel: +86 (10) 8532-5998; email: flora.guo@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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