Repo Rates Drop

The PBOC matched liquidity injections with maturities again, now the ninth day of matching maturities, liquidity was last added to the system on Feb 25. Repo rates have risen today, overnight repo rate last up 24 bps at 2.388%, 7-day repo rate is up 4bps at 2.18%.

• Futures in China are lower, 10-year future down around 0.075 at 96.825, while 5-, 2-year futures have seen smaller losses. Equity markets are higher as the overnight repo rate falls, and the 7-day repo rate stays below the prevailing PBOC rate of 2.2%.
• Oblique tensions between the US and China continue to bubble below the surface, China said today that it would not compromise with US over sovereignty, a response to warnings from the US over Taiwan.
• Markets await comments from the US-China summit in Alaska today. According to reports China intends to press the US to enact reversals of many of the China negative policies implemented by the Trump Administration.
• US are approaching the meeting as a way for the US to present complaints about Chinese actions, such as its heavy handed methods in Hong Kong, naval excursions in the South China Sea, economic pressure on US allies such as Australia, intellectual-property violations and cybersecurity attacks.
• China is said to come to the meeting with a different agenda that includes a request to drop all sanctions and restrictions on Chinese entities and people. It is thought that if measures against China were relaxed, it would in turn relax its own counter measures.
• China will also seek to cement regular meetings with the US, something that was curtailed under Trump, but US officials have refused to be drawn on the issue.