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MNI (London)
--Liquidity Conditions Deteriorating, Money Mkt Rates More Volatile
--Positive View On Economy Performance Surges; 10-Year CGB Yield To Rise 
--Policy Stance Continues To Tighten; No Need Seen For Q2 RRR Cut 
     BEIJING (MNI) - As China's economy shows signs of steadying and fiscal
stimulus measures kick in, the People's Bank of China has slowed the flow of
liquidity into the market, the latest MNI China Liquidity Survey shows.
     Liquidity tightened again in April, according to interbank traders, with
64.3% of survey respondents noting a deterioration on the previous month --
slightly lower than the 71.4% who saw tighter conditions in March.
     Although the majority saw conditions tighter in April, just over a third of
those surveyed saw conditions either unchanged or easier.
     Not all those survey respondents who saw tighter conditions in April
thought the PBOC had an active tightening bias in its policy, with 57.1% seeing
it unchanged. However, 35.7% of replies saw a tightening of the policy stance,
the highest number since November 2017.
     Traders were agreed that monetary policy is unlikely to see a sharp U-turn
from the previous easing stance, as the economy remains fragile and Beijing's
proactive fiscal policy needs coordination with the PBOC.
     The vast majority surveyed saw a pick-up in the economy through April, with
85.7% seeing improved conditions, the highest number since the survey started in
May, 2014. None of traders surveyed thought the economy was getting worse.
     As a result, 69.2% of respondents saw 10-year China Government Bond yields
higher over the next three months, the highest since April, 2017.
     One Shanghai trader noted that the positive economic expectations would
push yields higher for a while, but they would reverse as the overly optimistic
mode gets corrected, underlining doubts among some traders over the
sustainability of the recovery.
     "Although the whole situation seems improved, the structural problems are
still there," said one trade, concerned the export-led bounce would not last.
     Some traders saw the slowing of PBOC liquidity injections (18 straight days
of no injections from March 20) and volatility in money market rates through
April as indicating an adjustment in the policy stance.
     "The latest politburo meeting mentioned again the target of structural
deleveraging and the MPC meeting of the PBOC also stressed controlling the
floodgate, meaning further easing may be not seen in short term," a shanghai
trader said.
     Most traders saw upside room for the seven-day repo rate, with 64.3% of
those surveyed seeing the rate higher over the next two weeks, up from the 42.9%
who foresaw higher repo rates in the previous survey.
     Almost two-thirds of participant saw only a slim chance for the PBOC to cut
the RRR in Q2, as better than expected money supply and total social financing
data reduced the necessity.
     The survey gauged the opinions of 14 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 from April17 to April 22.
--MNI Beijing Bureau; +86 (10) 8532 5998; email:
--MNI Beijing Bureau; tel: +86 (10) 8532-5998; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
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MNI London Bureau | +44 203-865-3812 |
MNI London Bureau | +44 203-865-3812 |