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Why MNI
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of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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Free AccessMNI CHINA MONEY WEEK: Beijing Policymakers Increasingly Dovish
By Stuart Allsopp
SINGAPORE (MNI) - Chinese interest rate swaps fell to new cyclical lows
Friday, with the 1-year and 2-year dropping 8bps to 2.68% and 2.76%
respectively. The longer end has fallen less, but is still approaching new lows.
Markets are increasingly warming to the idea of interest rate cuts by the PBOC.
--EASING DOOR AJAR
In an MNI Sources article published yesterday (see 'Real Lending Rates May
Drop As China Eases Credit'), sources close to policymakers told MNI that the
central bank may not be ready to cut benchmark rates unless soft lending doesn't
rebound and the economy stalls further. Put another way, policymakers stand
ready to ease should the ongoing trend of weakening credit growth continue.
Considering that credit policy was eased as early as June, when big lenders
were reportedly given additional quotas, and yet total social finance (TSF)
growth has dropped to all-time lows, there is no reason to expect a rebound any
time soon.
The ongoing plunge in equity markets appears to be the driving force behind
declining rate expectations, with the correlation between 2-year interest rate
swaps and the CSI 300 rising back towards 1. Policymakers are unlikely to want
to preside over a continued stock collapse, and will likely err on the side of
further easing even at the expense of currency weakness.
--YUAN NOT MAIN CONCERN
The MNI Sources article mentioned above noted that a source saying "given
rate hikes in the U.S. and pressure on yuan depreciation, cutting rates across
the board carries a lot of risks, so more targeted measures are preferred." This
suggests to us that while explicit rate cuts may not the most likely course of
action, some form of monetary easing is very much on the cards.
The China-U.S. 2-year swap spread now sits at -13bps, having undergone a
massive 179bps fall since the start of the year, which fully explains the
collapse in the yuan. It is difficult to see the yuan's collapse ending soon
given the trends in the equity and rates markets, along with the above comments
that appear to leave the door open for further monetary easing.
--MNI Singapore Bureau; +65 8233 2326; email: Asia-Editor@marketnews.com
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
[TOPICS: M$A$$$,M$Q$$$,MI$$$$,MX$$$$,M$$FI$,MN$FI$,MN$FX$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.