China’s Market News: PBOC: Signs of a Liquidity Trap Emerge in China
Monday, Jul 18, 2016 10:24 am -07:00
by Renee Mu, Currency Analyst
This daily digest focuses on market sentiment, new developments in China’s foreign exchange policy, changes in financial market regulations and Chinese-language economic coverage in order to keep DailyFX readers up-to-date on news typically covered only in Chinese-language sources.
- Market participants are watching the PBOC’s daily fix tomorrow after the Yuan’s major breakout.
- PBOC official addresses the increasing risk of a liquidity trap and commented on monetary policy.
- Shanghai Stock Exchange introduces new rules on closing prices thanks to the trading link with more developed markets.
To receive reports from this analyst,sign up for Renee Mu’ distribution list.
Hexun News: Chinese leading online media of financial news.
- The onshore Yuan (USD/CNY) broke the key resistance level of 6.70 on Monday for the first time since November 2010. The offshore Yuan (USD/CNH) broke the same key level last Friday. On Monday, the PBOC set the daily fix in the Dollar/Yuan rate 156-pips weaker to 6.6961, the lowest level in five-and-half years. The level of 6.70 carries with it psycho-social importance. Chinese financial institutions expected that the PBOC would intervene and hold Yuan rates around this level for a while in the effort of slowing down the pace of Yuan devaluation against the US Dollar. However, if the PBOC wants to maintain its current Yuan exchange rate regime, it needs to allow the Yuan to follow market moves. The daily fix to be set by the PBOC tomorrow will signal whether such breakout is recognized by the regulator and thus worth keeping an eye on.
- The CFETS Yuan Index was reported at 94.38 on July 15th, rising +0.13% from a week ago. This is the first increase in the Yuan index since May 20th. The other two Yuan Indexes, BIS Yuan Index and SDR Yuan Index continued to drop over the past week, falling -0.10% and -0.05% to 95.33 and 95.37 respectively. Over the same period, the offshore Yuan (USD/CNH) lost -0.13% while the onshore Yuan (USD/CNY) increased +0.09%. The Central Bank is targeting Yuan stability against the currency basket, which is mainly measured by the CFETS Yuan Index.
Under the current condition, the PBOC is neither likely to revise the Yuan’s exchange rate regime nor the Yuan stability target, as such changes could cause market worries and chaos, which goes against China’s major goal of financial stability. The Central Bank is neither likely to hold the Yuan rate at any specific level forever, as it needs to burn foreign reserves which have already seen sharp drops this year. Yet, slowing down the pace of Yuan depreciation matters to China as plunges lower may not only lead to Yuan short speculation in offshore markets again, but could trigger panic exchanges in foreign currencies onshore (Chinese individuals are allowed to exchange $50,000 or equivalent of other currency per year). Thus, the timing of the Yuan breakout is under close watch by the regulator.
China Finance Information: a finance online media administrated by Xinhua Agency.
- China’s Central Bank issued 227 billion Yuan of Medium-term Lending Facility (MLF) to 14 target banks on July 18th, the ninth MLF this year. The package includes 53 billion Yuan of 3-month MLF, 134.5 billion Yuan of 6-month and 39.5 billion Yuan of 1-year MLF. The net liquidity added on the day through 7-day reverse repos was 20 billion Yuan. With these continued MLF and reverse repos injection as substitutions, the likelihood of PBOC cutting rates in the near future continues to drop.
In addition, the Director of Survey and Statistics Department of the PBOC, Sheng Songcheng, said on July 16th that China has showed signs of ‘a liquidity trap’. A liquidity trap is a situation in which a central bank fails to decrease interest rates with expansive monetary policy and fails to stimulate the economy. Director Sheng pointed out that the increasing gap seen between M1 and M2 indicates that companies are lacking investment opportunities and have left a huge amount of money in demand deposits. The gap between M1 and M2 started to widen last October. The most recent data shows that the M2 growth in June was 11.8% while the M1 growth soared to 24.6%. This means there are approximate 38 trillion Yuan in cash left in demand deposits. Therefore, Director Sheng said that China needs to use both monetary policy and fiscal policy in the effort of stimulating the economy. China may increase the fiscal deficit ratio to as high as 4% to 5% if necessary over the following periods.
Sina News: China’s most important online media source, similar to CNN in the US. They also own a Chinese version of Twitter, called Weibo, with around 200 million active users monthly.
- SAFE, China’s FX regulator, approved the first group of foreign exchange swap reversals in China’s interbank market. This shows that China continues to make progress in developing the domestic FX market by providing more FX products. 15 Chinese and international financial institutions participated in the swap reversal program and offset a total amount of $3.48 billion foreign exchange swaps based on their needs.
- The Shanghai Stock Exchange will adopt new rules effective on July 25th on closing prices for equities included in the trading link between Shanghai and Hong Kong stock exchanges. The Hong Kong Stock Exchange will introduce a closing auction session that has been widely used in many developed countries on July 25th, which may better meet the high institutional demand for execution at the closing price. Because of the trading link between Hong Kong and mainland China through the Shanghai-Hong Kong Stock Connect, the Shanghai Stock Exchange introduced news rules accordingly. This shows that capital flow channels in China not only facilitates investment to and from China but also provide external forces to help continue reforming China’s equity market in order to let it reach the global standard.
Monday, Jul 18, 2016 10:24 am -07:00
by Renee Mu, Currency Analyst
This daily digest focuses on market sentiment, new developments in China’s foreign exchange policy, changes in financial market regulations and Chinese-language economic coverage in order to keep DailyFX readers up-to-date on news typically covered only in Chinese-language sources.
- Market participants are watching the PBOC’s daily fix tomorrow after the Yuan’s major breakout.
- PBOC official addresses the increasing risk of a liquidity trap and commented on monetary policy.
- Shanghai Stock Exchange introduces new rules on closing prices thanks to the trading link with more developed markets.
To receive reports from this analyst,sign up for Renee Mu’ distribution list.
Hexun News: Chinese leading online media of financial news.
- The onshore Yuan (USD/CNY) broke the key resistance level of 6.70 on Monday for the first time since November 2010. The offshore Yuan (USD/CNH) broke the same key level last Friday. On Monday, the PBOC set the daily fix in the Dollar/Yuan rate 156-pips weaker to 6.6961, the lowest level in five-and-half years. The level of 6.70 carries with it psycho-social importance. Chinese financial institutions expected that the PBOC would intervene and hold Yuan rates around this level for a while in the effort of slowing down the pace of Yuan devaluation against the US Dollar. However, if the PBOC wants to maintain its current Yuan exchange rate regime, it needs to allow the Yuan to follow market moves. The daily fix to be set by the PBOC tomorrow will signal whether such breakout is recognized by the regulator and thus worth keeping an eye on.
- The CFETS Yuan Index was reported at 94.38 on July 15th, rising +0.13% from a week ago. This is the first increase in the Yuan index since May 20th. The other two Yuan Indexes, BIS Yuan Index and SDR Yuan Index continued to drop over the past week, falling -0.10% and -0.05% to 95.33 and 95.37 respectively. Over the same period, the offshore Yuan (USD/CNH) lost -0.13% while the onshore Yuan (USD/CNY) increased +0.09%. The Central Bank is targeting Yuan stability against the currency basket, which is mainly measured by the CFETS Yuan Index.
Under the current condition, the PBOC is neither likely to revise the Yuan’s exchange rate regime nor the Yuan stability target, as such changes could cause market worries and chaos, which goes against China’s major goal of financial stability. The Central Bank is neither likely to hold the Yuan rate at any specific level forever, as it needs to burn foreign reserves which have already seen sharp drops this year. Yet, slowing down the pace of Yuan depreciation matters to China as plunges lower may not only lead to Yuan short speculation in offshore markets again, but could trigger panic exchanges in foreign currencies onshore (Chinese individuals are allowed to exchange $50,000 or equivalent of other currency per year). Thus, the timing of the Yuan breakout is under close watch by the regulator.
China Finance Information: a finance online media administrated by Xinhua Agency.
- China’s Central Bank issued 227 billion Yuan of Medium-term Lending Facility (MLF) to 14 target banks on July 18th, the ninth MLF this year. The package includes 53 billion Yuan of 3-month MLF, 134.5 billion Yuan of 6-month and 39.5 billion Yuan of 1-year MLF. The net liquidity added on the day through 7-day reverse repos was 20 billion Yuan. With these continued MLF and reverse repos injection as substitutions, the likelihood of PBOC cutting rates in the near future continues to drop.
In addition, the Director of Survey and Statistics Department of the PBOC, Sheng Songcheng, said on July 16th that China has showed signs of ‘a liquidity trap’. A liquidity trap is a situation in which a central bank fails to decrease interest rates with expansive monetary policy and fails to stimulate the economy. Director Sheng pointed out that the increasing gap seen between M1 and M2 indicates that companies are lacking investment opportunities and have left a huge amount of money in demand deposits. The gap between M1 and M2 started to widen last October. The most recent data shows that the M2 growth in June was 11.8% while the M1 growth soared to 24.6%. This means there are approximate 38 trillion Yuan in cash left in demand deposits. Therefore, Director Sheng said that China needs to use both monetary policy and fiscal policy in the effort of stimulating the economy. China may increase the fiscal deficit ratio to as high as 4% to 5% if necessary over the following periods.
Sina News: China’s most important online media source, similar to CNN in the US. They also own a Chinese version of Twitter, called Weibo, with around 200 million active users monthly.
- SAFE, China’s FX regulator, approved the first group of foreign exchange swap reversals in China’s interbank market. This shows that China continues to make progress in developing the domestic FX market by providing more FX products. 15 Chinese and international financial institutions participated in the swap reversal program and offset a total amount of $3.48 billion foreign exchange swaps based on their needs.
- The Shanghai Stock Exchange will adopt new rules effective on July 25th on closing prices for equities included in the trading link between Shanghai and Hong Kong stock exchanges. The Hong Kong Stock Exchange will introduce a closing auction session that has been widely used in many developed countries on July 25th, which may better meet the high institutional demand for execution at the closing price. Because of the trading link between Hong Kong and mainland China through the Shanghai-Hong Kong Stock Connect, the Shanghai Stock Exchange introduced news rules accordingly. This shows that capital flow channels in China not only facilitates investment to and from China but also provide external forces to help continue reforming China’s equity market in order to let it reach the global standard.
Today at 2:18 pm by Rocky
» utube MM&C 4/26/24 Iraqi Dinar - US Treasury Exchange Rates- Focus - Banking Partnerships - Rate C
Today at 2:17 pm by Rocky
» Parliamentary efforts to transform Iraq into a global market for transferring Internet capacities
Today at 2:07 pm by Rocky
» A parliamentary committee that enriches the political forces: Stop plundering Iraq’s wealth and work
Today at 1:56 pm by Rocky
» Politician: Salem Al-Issawi is the most likely to assume the presidency of Parliament
Today at 1:55 pm by Rocky
» The price of the dollar is close to 145 thousand dinars؛ how much is $100 worth of transactions؟
Today at 11:57 am by wciappetta
» Al-Sudani: The world today is witnessing crises whose impact has been reflected in the global econo
Today at 9:50 am by Rocky
» The Federal Court responds to an inquiry by Al-Sudani regarding the powers of the provincial council
Today at 9:40 am by Rocky
» Among them are the Iraqis... a list of the most sought-after immigrants to America
Today at 9:38 am by Rocky
» An expert talks about the "biggest barrier" and the positives of merging Iraqi and Arab banks
Today at 9:29 am by Rocky
» The House of Representatives adjourns its session
Today at 9:24 am by Rocky
» Parliamentary demands to expedite the legislation of the Eid al-Ghadir holiday law (documents)
Today at 9:23 am by Rocky
» Parliament adds the paragraph “Electing the Speaker of the House of Representatives” to its agenda
Today at 9:21 am by Rocky
» Alsumaria publishes the text of the law against prostitution and homosexuality
Today at 9:20 am by Rocky
» A parliamentarian reveals the reason for the failure of the Speaker of Parliament to pass during tod
Today at 9:19 am by Rocky
» Al-Sudani: The government has launched many strategies and initiatives that will improve the reality
Today at 8:42 am by Rocky
» International Business: Iraq has made progress in supporting businesses through investment and priva
Today at 8:33 am by Rocky
» Association of Banks: Iraq is witnessing great development in the transition to electronic governmen
Today at 8:25 am by Rocky
» The House of Representatives votes to add an item to its agenda (election of the Speaker of the Hous
Today at 8:22 am by Rocky
» Parliamentary integrity: Combating corruption requires parliamentary legislation
Today at 8:15 am by Rocky
» Al-Karaawi: America is trying to restrict Iraq
Today at 8:13 am by Rocky
» The State of Law coalition moves to form the local government in Diyala
Today at 8:12 am by Rocky
» The Sudanese and his battle against corruption.. Where is the fault with the government or with the
Today at 8:11 am by Rocky
» Prime Minister's Advisor: We will see the dollar fall on the black market soon
Today at 8:09 am by Rocky
» The Sunni blocs are resolute. The presidency of the Council is ours, away from Al-Halbousi
Today at 8:08 am by Rocky
» Al-Sudani discusses with a workers’ organization his government’s steps in this field
Today at 7:58 am by Rocky
» Parliament holds its session in the presence of 170 deputies
Today at 7:57 am by Rocky
» In the presence of Nechirvan Barzani and Al-Sudani... the State Administration Coalition holds an “i
Today at 7:55 am by Rocky
» The UAE company ADNOC resorts to Iraqi oil. Find out the reasons
Today at 7:53 am by Rocky
» The Iraqi Parliament votes to add an item to elect a president to its agenda
Today at 7:52 am by Rocky
» The Federal Court responds to an inquiry by Al-Sudani regarding the powers of the provincial council
Today at 7:51 am by Rocky
» Al-Sudani: It is necessary to attract women to work as a productive energy that cannot be disrupted
Today at 7:47 am by Rocky
» Zebari regarding targeting the Kormor field: a systematic attack on the economy of Kurdistan
Today at 7:46 am by Rocky
» Saudi Arabia tops, and this is Iraq's rank... a list of major suppliers of crude oil to South Korea
Today at 7:45 am by Rocky
» With a value of 125 million dollars.. Iraq is at the forefront of countries importing Iranian textil
Today at 7:44 am by Rocky
» More than a billion dollars in sales from the Iraqi Central Bank within a week
Today at 7:43 am by Rocky
» Al-Sudani stresses the need for the expertise of the International Labor Organization to legislate a
Today at 7:29 am by Rocky
» Including the return of 21 wanted persons.. The Iraq Money Recovery Fund counts its achievements in
Today at 7:27 am by Rocky
» The path to development is the criterion between true patriotism and political clowning.
Today at 7:25 am by Rocky
» The file of the Presidency of Parliament is on the state administration table... this evening
Today at 7:22 am by Rocky
» Director General of the International Labor Organization: Many challenges in the world of work and t
Today at 7:20 am by Rocky
» Al-Sudani: The world is witnessing crises that reflect negatively on the Arab and international peop
Today at 7:11 am by Rocky
» Prime Minister: Our government has provided great support for the success of the activities, program
Today at 7:08 am by Rocky
» Al-Asadi: Iraq places the social protection file among its priorities
Today at 7:07 am by Rocky
» Al-Sudani: Iraq is one of the first countries in the region to join the International Labor Organiza
Today at 7:05 am by Rocky
» In the presence of Al-Sudani and Barzani, the State Administration Coalition holds an “important” me
Today at 7:03 am by Rocky
» Appreciating the presence of Al-Sudani... Director General of the Arab Labor Organization: Here from
Today at 5:29 am by Rocky
» Prime Minister: Our government has provided great support for the success of the activities, program
Today at 5:28 am by Rocky
» Al-Sudani: The world is witnessing crises that reflect negatively on the Arab and international peop
Today at 5:24 am by Rocky
» The Parliamentary Development Institute organizes a workshop on the political role of the representa
Today at 5:22 am by Rocky
» With Arab and international participation. Tomorrow will be the start of the Fourth Baghdad Internat
Today at 5:21 am by Rocky
» OPEC Secretary General: The end of oil is not on the horizon
Today at 5:19 am by Rocky
» Closing a number of unlicensed offices and companies south of Baghdad
Today at 5:16 am by Rocky
» Repercussions of the bombing...intensive government movements to resume work in the “Kormor” field
Today at 5:15 am by Rocky
» In the presence of Al-Sudani...the opening of the Arab Labor Conference in its 50th session in Baghd
Today at 5:14 am by Rocky
» Al-Sudani: We are working on drawing future visions regarding the “green and digital” economic secto
Today at 5:13 am by Rocky
» Barzani after the Kormor attack: We are ready to coordinate with Baghdad to put an end to these atta
Today at 5:10 am by Rocky
» Al-Sudani directs the formation of an investigative committee into the circumstances of the Kormo fi
Today at 5:08 am by Rocky
» Bismayah is confused about the new electronic portal.. What about the landlord and the subcontracts?
Today at 5:07 am by Rocky
» Kurdistan Government: Loss of 2,500 megawatts of electricity due to targeting the Kormor field
Today at 5:06 am by Rocky
» Crisis in Kurdistan: 12-hour daily power outage and complaints of “confusion”
Today at 5:05 am by Rocky
» The Supreme Anti-Corruption Commission demands Nineveh for the contracts concluded by “Najm Al-Jubou
Today at 5:04 am by Rocky
» Al-Khanjar, Al-Samarrai, and Abu Mazen are hosted by Shaalan Al-Karim to discuss accelerating the se
Today at 5:03 am by Rocky
» Iraq asks the countries of the world to respond to its requests to extradite wanted persons: We have
Today at 5:02 am by Rocky
» “It is coming soon.” The Sudanese advisor sets the date for the referral of the Baghdad metro and th
Today at 5:01 am by Rocky
» Al-Mubarqa: Iraq reserves its full right to respond to the Australian behavior
Today at 5:00 am by Rocky
» Dollar exchange rates on Iraqi stock exchanges... recorded a decline, and this is the list
Today at 4:58 am by Rocky
» Mr. Al-Sadr supports the position of American university students
Today at 4:56 am by Rocky
» Iraqis are ranked 7th in the Arab world on the list of those most seeking immigration to America. He
Today at 4:55 am by Rocky
» Soon.. 3 new hospitals will open in Baghdad
Today at 4:52 am by Rocky
» Sponsored by Al-Sudani...the opening of the Arab Labor Conference in its fiftieth session in Baghdad
Today at 4:51 am by Rocky
» Al-Shammari chairs a meeting at the controlling headquarters to review the results of the security o
Today at 4:49 am by Rocky
» Arab Labor Organization: We commend Iraq's interest in the Arab Labor Conference
Today at 4:48 am by Rocky
» Al-Sudani: The development road project will provide many job opportunities
Today at 4:47 am by Rocky
» Sudanese advisor criticizes Kuwaiti analyzes regarding the development road project
Yesterday at 2:21 pm by Rocky
» Al-Mandalawi stresses the need to strengthen economic and trade cooperation between Iraq and Poland
Yesterday at 2:04 pm by Rocky
» Power maneuvers: America provides defensive weapons to Kurdistan in exchange for withholding from Ba
Yesterday at 10:26 am by Rocky
» Kuwait is drilling an oil well near Umm Qasr, towards Iraqi territory
Yesterday at 10:24 am by Rocky
» In the document... the first Iraqi ministry identifies the obstacles to changing the new official wo
Yesterday at 10:22 am by Rocky
» Italian Institute: Iraq is stuck in its own crises, including Baghdad’s efforts to undermine the “au
Yesterday at 10:21 am by Rocky
» The head of the Integrity Commission announces the holding of an international Interpol conference i
Yesterday at 10:18 am by Rocky
» Planning: Iraqi companies are not efficient in conducting the population census
Yesterday at 10:14 am by Rocky
» MM&C 4/25/24 National Bank of Iraq goes live with Temenos core banking and payments
Yesterday at 8:06 am by Rocky
» A banking official indicates a "danger" to Iraq by depriving more than half of its banks of dollars
Yesterday at 7:55 am by Rocky
» With the participation of the Association of Private Banks, investment opportunities are on the tabl
Yesterday at 7:45 am by Rocky
» Within a month... an Iranian border crossing recorded a noticeable increase in exports of goods to I
Yesterday at 7:44 am by Rocky
» The Association of Private Banks appreciates the efforts of the government and the Central Bank to c
Yesterday at 7:43 am by Rocky
» Al-Maliki's coalition presents a third candidate for the position of governor of Diyala
Yesterday at 6:57 am by Rocky
» Arab gathering: The Kirkuk problem is getting complicated and the Sudanese must intervene
Yesterday at 6:56 am by Rocky
» Next week.. a Kurdish delegation will visit Baghdad to meet with the Minister of Finance
Yesterday at 6:54 am by Rocky
» Under the pretext of salaries... Al-Party refrains from handing over port revenues to Baghdad
Yesterday at 6:53 am by Rocky
» Association of Banks: For the first time, we are witnessing a clear targeting of depriving half of t
Yesterday at 6:51 am by Rocky
» Parliament does not know the reason for the delay in sending the 2024 budget schedules: Voting takes
Yesterday at 6:49 am by Rocky
» Applicants for the 2024 Hajj are demanding that the Central Bank secure the dollar for them through
Yesterday at 5:09 am by Rocky
» Governmental and private banks will showcase their services tomorrow during Financial Inclusion Week
Yesterday at 5:08 am by Rocky
» Iraq's oil exports rise despite OPEC+ cuts
Yesterday at 5:06 am by Rocky
» A study explodes a "surprise"... Iraq is among the countries that export oil to "Israel": How is the
Yesterday at 5:04 am by Rocky
» Al-Araji emphasizes working to strengthen national identity
Yesterday at 5:02 am by Rocky
» Al-Sudani visits Saudi Arabia to participate in the World Economic Forum in Riyadh
Yesterday at 5:01 am by Rocky