MNI China Daily Summary: Wednesday, Oct 29

EXCLUSIVE: Chinese interbank traders expect the central bank to increase liquidity injections next month to cope with sizeable maturities, increased speculation of lower rates and concern tensions will resurface between China and the U.S despite a short-term truce, MNI’s China Money Market Index indicated.

POLICY: Chinese President Xi Jinping will meet with U.S. President Donald Trump in Busan, South Korea, on Oct 30, the Foreign Ministry spokesperson announced.

POLICY: Chinese authorities have launched a special fund to support the development of strategic emerging industries among central state-owned enterprises (SOEs), state-backed media Financial Associated Press reported.

LIQUIDITY: The PBOC conducted CNY557.7 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net injection of CNY419.5 billion after offsetting maturities of CNY138.2 billion today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.5452% from 1.5580%, Wind Information showed. The overnight repo average decreased to 1.4045% from 1.4687%.

YUAN: The currency strengthened to 7.0991 to the dollar from 7.1006 on Tuesday. The PBOC set the dollar-yuan central parity rate lower at 7.0843 on, compared with 7.0856 set on Tuesday. The fixing was estimated at 7.0954 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 1.8115%, up from Tuesday's close of 1.8110%, according to Wind Information.

STOCKS: The Shanghai Composite Index was up 0.70% to 4,016.33, while the CSI300 index gained 1.19% to 4,747.84. The Hang Seng Index fell 0.33% at 26,346.14.

FROM THE PRESS: The yuan is expected to remain relatively strong against the U.S. dollar in the near term, but any appreciation may be limited given the dollar's resilience as the currency has already fallen sharply in the first half of the year and the market has partly priced in potential Fed rate cuts, Securities Daily reported citing Wang Qing, analyst with Golden Credit Rating. China’s economic fundamentals continue to play a major role in supporting the yuan, while the pent-up demand for foreign exchange settlement from customers may be released as the currency appreciates, said Ming Ming, chief economist of CITIC Securities, noting the central bank has sufficient policy reserves to stabilise the exchange rate.

The Shanghai Composite Index broke through 4,000 points briefly during Tuesday's trading session, returning to this handle for the first time since Aug 19, 2015, 21st Century Business Herald reported. The Index has risen by 18.99% so far this year, with the electronics sector nearly doubling by rising 98.01%, the newspaper said. Though A-shares recently saw transaction volume shrinking with increased volatility, there still are trading opportunities in low-priced targets in the directions of computing power and robots, the newspaper said citing analysts from Huatai Securities.

The People’s Bank of China will focus on deepening the reform of the modern central banking system and further improving the efficiency of monetary policy transmission in the next five years, Shanghai Securities News reported citing analysts following the release of the Proposal of the Party's Central Committee on the formulation of the 15th Five-Year Plan. Meanwhile, the Bank’s intension to build a "comprehensive macro-prudential management system" should focus on key areas such as systemically important financial institutions and cross-border capital flows, by improving risk monitoring and early warning and smoothening market fluctuations through counter-cyclical adjustments, the newspaper said.