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Daily Archives: September 17, 2022

China Holds Key Rate, Withdraws Liquidity Amid Yuan Defense

China’s central bank drained liquidity from the banking system for a second straight month while leaving rates unchanged as it sought to ease pressure on the yuan from a widening policy divergence with the Federal Reserve.

The People’s Bank of China offered 400 billion yuan ($58 billion) via its medium-term lending facility, matching the median forecast in a Bloomberg survey. That would result in a net withdrawal of 200 billion yuan in September. The rate was held at 2.75% after being lowered by 10 basis points in August.

PBOC caution on easing comes amid heightened concerns over capital outflows after US inflation data renewed bets for a large Fed hike this month. It also follows data that showed a slow recovery in China’s credit growth last month, which may have reduced the urgency for back-to-back rate cut while the impact of other measures to support the economy take effect.

“It would be quite rare for the PBOC to cut rates consecutively except in a crisis mode,” said Xiaojia Zhi, economist at Credit Agricole CIB in Hong Kong. “Looking ahead, we think the PBOC could be hesitant to adjust the MLF rate lower in the near term, given expectations for rapid tightening by the Fed and the depreciation pressure on the yuan.”

Jitters over a diverging monetary policy with the US have already put the yuan on track for its worst annual loss since 1994. The PBOC set a string of stronger-than-expected yuan fixings and reduced banks’ foreign-currency reserve requirement to support the currency. The yuan still remains within striking distance of a two-year low touched last week.

Tighter liquidity could reduce the downward pressure on the yuan. It may also somewhat ease concerns that the excess cash in the banking system would increase financial risks by fueling asset bubbles.

It makes sense for the PBOC to drain some excess liquidity via the MLF operation as it has relied more on the use of structural monetary policy tools, said Winson Phoon, head of fixed income research at Maybank Securities Pte Ltd. in Singapore. The central bank will provide more than 200 billion yuan in special relending funds, the State Council announced after a meeting Tuesday.

PBOC officials have signaled they have enough monetary policy room to act to support the economy amid subdued inflation. Deputy Governor Liu Guoqiang said this month policy space is “ample” and the toolbox is sufficient, both in terms of price-based and quantity-based instruments.

Yields on China’s 10-year government bonds are little changed at 2.66% on Thursday after rising in the last two sessions. The onshore yuan fell 0.1% to 6.9704 as of 3:40 p.m. local time.

Growth Headwinds

China’s growth projections have come down steadily since March, when the official target of around 5.5% was first disclosed. The consensus in a Bloomberg survey is for the economy to expand 3.5% this year. Growth is not only pressured by lockdowns but a housing market collapse is also also weighing on the economy.

Moreover, official data for August, due to be published on Friday, will likely show little improvement in industrial output, retail sales and investment. That’s prompting some analysts to bet on further central bank easing this year.

The PBOC still has room to inject more liquidity in the fourth quarter, with the potential for a 50 basis points cut in banks’ reserve requirement ratio to accommodate local government bond issuance and to partially replace MLF funding, Credit Agricole’s Zhi said.

Analysts are now watching if banks would lower their loan prime rates next week after major state-owned banks cut deposit rates for individuals.

“It provides more policy room for banks to lower LPRs,” said Liu Peiqian, chief China economist at NatWest Group Plc, who sees a higher chance of another 5-10 basis point cut in the five-year LPR in the coming months to boost the demand for mortgage loans.

Source : BNN Bloomberg

Charts: FedEx a Victim of Tighter Global Conditions

FedEx down 14% after hours to its lowest since Aug 2020…

Source : Bloomberg

In Pictures: 1969 Chevrolet Corvette Coupe L88 4-Speed

The car was sold for US$631,000 a few days ago. GM sold the car to the dealer for US$7027.55 in 1969.

Source : Bring A Trailer

Canada Unemployment Rate Rose in August 2022

The 5.4% rate is well above the market expectations of 5%.

Source : Trading Economics



































Source : 新华网

Chinese Corporate Dollar Debt Issuance Falls at Record Pace

Lorretta Chen wrote . . . . . . . . .

Chinese companies are curbing their dollar borrowings at a record pace this year, stung by a property debt crisis on top of rising rates that have dragged down corporate financing in the currency nearly everywhere.

The amount of dollar bonds issued and loans taken out by Chinese corporates has slumped 46% to $101 billion, the largest decline for similar periods of previous years in data compiled by Bloomberg. That compares with a 25% drop so far in 2022 among firms in the Asia Pacific region excluding China and a 30% decline in issuance of US currency notes by all companies globally.

The slide in issuance from Chinese borrowers is in line with global trends, with firms from Beijing to Sao Paulo increasingly avoiding dollar-debt markets given surging interest rates and dollar strength, as the Federal Reserve ramps up its fight against inflation. But the shift by Chinese companies toward the nation’s local debt market stands out. Rate cuts by its central bank have helped send local financing costs to record lows while monetary authorities elsewhere in the world have tightened recently.

It’s now cheaper to borrow in yuan than it is in dollars, so even export-oriented companies that earn revenue in dollars have been switching to yuan financing at the margin, said Adam Wolfe, emerging markets economist at Absolute Strategy Research Ltd.

The Fed’s tightening cycle has weighed on global dollar debt sales as interest rates have spiked, sending notes to their first global bear market in a generation. The European Central Bank just made its biggest-ever rate hike, ahead of the Fed’s upcoming meeting.

Global dollar-bond issuance jumped last week, with Japanese companies driving such activity in APAC, as borrowers raced to get ahead of potentially still-higher costs. But Chinese firms, which make up 38% of this year’s dollar-note issuance in this region, have sold around 10% of this month’s total.

Instead, mainland borrowers are increasingly looking closer to home as China’s monetary policy diverges from other nations. Yuan-denominated bond issuance has overtaken global dollar-note sales in recent months amid some of the cheapest-ever funding costs domestically. Authorities including the People’s Bank of China have been stepping up efforts to support a lackluster economy hurt by the Covid-Zero policy and a worsening housing crisis.

“We don’t expect any reversal of the trend in short term as the divergence in PBOC and Fed policy is set to continue,” according to Owen Gallimore, head of APAC credit analysis at Deutsche Bank AG. Because of falling bond issuance, he predicts investment-grade Chinese dollar notes will outperform for 2022.

Chinese firms have also been opting to sell bonds in the offshore yuan. Issuance so far this year of so-called Dim Sum notes has surged 59% to $25 billion, the most since 2014, according to Bloomberg-compiled data.

Developers had been among China’s biggest dollar-bond issuers. But that channel has largely been cut off to the sector in light of record defaults as home sales have fallen for more than a year and the government clamped down on property-related debt growth. In a bid to increase oversight of foreign debt risks, Beijing has proposed requiring Chinese borrowers to register, report and receive approval for sales of offshore notes with tenors exceeding one year.

Source : BNN Bloomberg






Source : 新华网