EM ASIA CREDIT: China Orient (ORIEAS): New USD deal

• The PBOC issued CNY337.3bn of 7-day reverse repo at 1.4% during this morning's operations.
• Today's maturities CNY189bn.
• Net liquidity injection CNY148.3 bn.
• The PBOC monitors and maintains liquidity in the interbank system through the issuance of reverse repo.
• The CFETS Pledged Repo Deposit Institutions 7 Day Weighted is at 1.45%, from prior close of 1.41%.
• The China overnight interbank repo rate is at 1.36%, from the prior close of 1.38%.
• The China 7-day interbank repo rate is at 1.60%, from the prior close of 1.34%.

The USD/CNY fix hit another low of 7.0881 today (the strongest level in CNY terms since Oct last year), against a market forecast of 7.1145. The fixing error was tighter, but only marginally at -264pips (versus -283pips on Friday). This along with the positive weekend news around US-China trade talks will help keep USD/CNH risks skewed lower. We are close to 7.1100, with a focus likely to be on a test of the 7.1000 region. 

US natural gas has responded to news of a draft US-China trade deal which is expected to be agreed by Presidents Trump and Xi when they meet on Thursday. The agreement includes a year’s delay to China’s rare earths licensing regulations and should mean that the additional 100% US tariff won’t be imposed on November 1. The pullback from a trade war is positive for global energy consumption and the US was the largest LNG exporter in 2024. 

• US prices are up 2.3% to $3.38 so far in Monday’s trading but off the initial jump to $3.433. They were little changed on Friday but finished the week up almost 11% on forecasts of cooler weather and thus a pickup in heating demand. Inventories remain ample which should put a cap on prices even with lower temperatures.
• Atmospheric G2 forecasts for the central and eastern US are lower as the month turns but then temperatures should be higher over November 3-7 over the east.
• US lower-48 gas production rose 5.4% y/y on Friday while demand was only 0.1% y/y, according to BNEF data. Flows for LNG rose 1.6% w/w.
• European prices continued range trading last week between EUR 31.365-32.885. On Friday they fell 1.8% to EUR 31.885 but were little changed on the week and up only 1.5% in October.
• The conflict in Ukraine remains a risk to Europe this winter with sanctions tightened on Russia and Europe’s goals of stopping Russian gas consumption by the start of 2027 as well as Russian attacks on Ukraine increasing its demand for global gas supplies. Also, Ukraine continues to target Russian oil & gas facilities.