PBOC Halts Month-End Injections; Speculation Of Another RRR Cut

The PBOC drained a net CNY 40bn of liquidity today, halting its run of injections at August month-end. Repo rates fell, though the overnight rate and the 7-day rate remain inverted at 2.1243% and 2.0858% respectively.

• Bond futures are sharply higher today, 10-year contract up 34 ticks at 100.37 to hit a fresh contract high. Data earlier showed Caixin manufacturing PMI drop into contractionary territory, the August print came in at 49.2, below estimates of 50.1. Yesterday's official PMI saw both the manufacturing and non-manufacturing measure slip, though the latter fell into negative territory for the first time since March 2020. The Caixin release highlighted modest declines in news orders and output, a deepening of supply chain issues, as well as lower purchasing activity and staffing levels for companies. The weak data has reinforced the view that there could be another RRR cut forthcoming from the PBOC. There were reports in the Securities Times citing analysts earlier that "the People's Bank of China may further boost liquidity including cutting banks' required reserve ratios to meet significant upcoming maturing MLFs and various demands of the economy, including the sales of local government special bonds".