MNI China Daily Summary: Thursday, July 25

MNI BRIEF: Japan Govt Keeps Econ View, Cuts Exports

MNI: PBOC Conducts CNY200 Bln via MLF Thurs; Rate Cut

MNI: PBOC Sets Yuan Parity Lower At 7.1321 Thurs; -1.92% Y/Y

CHINA PBOC CONDUCTS CNY235.1 BILLION VIA 7-DAY REVERSE REPOS THURS

CHINA SETS YUAN CENTRAL PARITY AT 7.1321 THURS VS 7.1358

CBI Price Expectations for Three Months Ahead Lowest Since December 2020

MNI: UK JUL CBI INDUSTRIAL TRENDS TOTAL ORDERS -32

Broad-Based IFO Weakness Reinforces Narrative of Recovery Stall

RPT-MNI: Canada Sticks To Fiscal Anchors, Spends Chunk Of Windfall

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Morgan Stanley on BCRP

PERU
  • The BCRP hiked by 50bp, to 2.00%, in its November policy rate decision, while 12m ahead inflation expectations remained mostly flat, dropping slightly, from 3.64% to 3.61%, meaning the hike raises the real policy rate (policy rate - 12m ahead inflation) to -1.61% from -2.14%. Therefore, the hike should be supportive for PEN on the margin.
  • Going forward, additional policy rate hikes should help support PEN on the margin especially as inflation expectations stabilize and reverse course. While hikes typically support a flattening bias in yield curves, at the moment, when accounting for fiscal risk premia, the curve appears to be pricing a 2s10s spread comparable to levels supported by policy rates at 3.25%-3.50%. This comes after a nearly 30bp flattening of the curve since the last policy rates decision.
  • Hence, MS expect curve flattening to moderate and possibly steepening slightly going forward.
  • MS believe inflationary pressures will remain, increased by food inflation and fuel prices resulting from higher commodity prices, and their second-round effects, which in turn impact inflation expectations. We estimate inflation to close 2021 at 5.7% and above the 2.0% target next year (2.3%).

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