CHINA: Central Bank Injects CNY29.5bn via OMO

The Westpac leading index for March fell 0.11% m/m leaving the 6-month annualised rate at 0.6% down from 0.9% in February. There are signs of the impact of the recent US tariff announcements in some of the components. The 6-month rate leads detrended growth by 3 to 9 months and it continues to signal a recovery but heightened uncertainty started to weigh in March and the April index is likely to be more severely affected given the April 2 US reciprocal tariff announcement. 

• The uncertainty of the global trade situation, especially regarding China, along with market volatility are likely to be the main influences on the Westpac leading index and Australia’s economy in the coming months. There is little direct exposure to the US but its trade war with China, Australia’s largest export destination, is the concern.
• Westpac has revised down its 2025 Australian growth forecast to 1.9% y/y from 2.2% with risks skewed to the downside due to recent global developments. It is forecasting a 25bp rate cut at the May 20 RBA meeting driven by Q1 data showing a “sustained” inflation slowdown and elevated global uncertainty with the situation likely to drive a more dovish tone.
• The 0.9pp improvement in the 6-month rate over the last 6 months was driven by commodity prices, which was due to the weaker AUD, wider yield spread, stronger US IP and better unemployment expectations. However, softer Australian equities and consumer sentiment weighed, which is likely to continue given recent market nervousness and the April 6% drop in confidence. 

• The PBOC issued CNY104.5 bn of 7-day reverse repo at 1.5% during this morning’s operation.
• Today’s maturities CNY118.9bn
• Net liquidity withdrawal CNY14.4bn.
• The PBOC monitors and maintains liquidity through the issuance of reverse repo.
• The CFETS Pledged Repo Deposit Institutions 7 Day Weighted Average is at 1.51%, from 1.71% yesterday.
• The China Overnight interbank repo rate is at 1.70%, from 1.70% yesterday.
• The China 7-day interbank repo rate is at 1.52%, from 1.71% yesterday. 

Expectations of strong pricing at auctions were confirmed, with the latest ACGB Dec-34 supply achieving a weighted average yield that printed 0.37bp through prevailing mids (per Yieldbroker). The cover ratio also improved, rising to 3.9900x from 3.7250x.

• As highlighted in our auction preview, several factors were likely to impact demand. While the current outright yield was around 20bps lower than the level at the previous auction, the 3/10 yield curve was at its steepest since December 2021.
• Demand for duration was also likely to benefit from the recent rebound in sentiment toward longer-dated global bonds, following last week’s sharp sell-off.
• The ACGB Dec-34 cash line and the XM futures contract are little changed in post-auction dealings.