MNI China Daily Summary: Tuesday, May 18

POLICY: China will increase commodity supplies by tapping into domestic and foreign resources and continuing to strengthen market supervision, said Jin Xiandong, spokesman of the National Development and Reform Commission at a briefing on Tuesday, adding that rising commodity prices would drive up PPI further in Q2 before the measure slows in the second half of this year.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.2%. The operation left liquidity unchanged given it netted off CNY10 billion reverse repos maturing today, according to Wind Information. The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 2.1914% from Monday's close of 2.1857%, Wind Information showed. The overnight repo average fell to 2.0928% from 2.1462% on Monday.

YUAN: The currency strengthened to 6.4245 against the dollar from Monday's close of 6.4416. The PBOC set the dollar-yuan central parity rate higher at 6.4357 on Tuesday, compared with the 6.4307 set on Monday.

BONDS: The yield on 10-year China Government Bonds was last at 3.1310%, down from Monday's close of 3.1400%, according to Wind Information.

STOCKS: The Shanghai Composite Index rose 0.32% to 3,529.01, while the CSI300 index edged up 0.05% to 5,187.60. The Hong Kong's Hang Seng Index rallied 1.42% to 28,593.81.

FROM THE PRESS: The PBOC is likely to keep the Loan Prime Rate unchanged when it issues monthly guidance on May 20, the Securities Daily reported citing analysts. The central bank has rolled over the maturing medium-term lending facilities with the amount and the rate unchanged, indicating it intends to keep policies stable and guide interbank rates around policy rates, the newspaper said. Banks also lack the motivation to increase May LPR quotes given marginal changes in banks' capital costs, the newspaper said citing Wang Qing, chief analyst at Golden Credit Rating. The one-year LPR has been unchanged for the 12th month at 3.85%, with the five-year LPR also unchanged at 4.65%.

China's April data released on Monday showed momentum of recovery has weakened with consumption and service industry lagging, even as industrial output expanded aided by strong exports, the 21st Century Business Herald reported citing analysts. Rising raw material prices have hurt small and medium-sized manufacturers and may ultimately slow wage growth, the newspaper said citing Luo Zhiheng, deputy head of Yuekai Securities Research Institute. Slower construction activities amid rainy weather in parts of the country contributed to weakened service performance, the newspaper said. Investment is expanding due to the resilient real estate and improved manufacturing, the newspaper said.

Premier Li Keqiang urged the EU to sign the bilateral investment agreement as soon as possible in a call with Italian Prime Minister Mario Draghi on Monday, the official China Daily reported. The agreement, the negotiations of which concluded last year, was delayed by the EU following sanctions against each other over human rights issues in China's Muslim Xinjiang Uygur region. Li calls the two countries "comprehensive strategic partners" and hopes Italy will help promote a healthy and stable development of China-EU ties, the daily said.