Asia Update: China Watch, Data Dump, Yuan and PBoC

China November retail sales +8.0% y/y vs +7.6% consensus, after +7.2% in October. November industrial production +6.2% vs 5.0% consensus, after +4.7% in October. January to November fixed-asset investment +5.2% vs +5.2% consensus, after +5.2% previously.

USDCNH is slightly lower after the stronger China data. ho-hum

China data beats abound, but the better than expected prints are eliciting a meek market response suggesting to me anyway that the markets are moving into holiday mode not wanting to extend risk to any significant degree early in the week. 

If I had to summarize the market mood this morning, its the general feeling that a trade deal, even a baby stepped one, is better than none and a hell of a lot better than a trade war escalation, something we were facing only weeks ago. 

 

Yuan Watch 

Perhaps a positive signal that trade talks are moving along congenially (CN) CHINA PBOC SETS YUAN REFERENCE RATE: 6.9915 V 7.0156 PRIOR (1st setting stronger than 7 since Nov 12, the strongest level since Aug 6)  

Also, and a policy move that could be interpreted as a positive sign for ASEAN risk sentiment, the Pboc is willing to nudge the Yuan stronger The PBoC will sell CNY10 bn of 6m bills in Hong Kong which could yuan liquidity making it expensive to short. But the market was entirely non-reactive ahead of today's China data dump where it was also pretty much nonreactive after positive data beats. 

Yuan is all but turning into a binary trade influenced by the degree of current or speculated tariffs rollbacks. 

PBoC watch

There are two key events to watch this week. The first is the CNY286 bn of MLF due today. Reuters and Bloomberg report the PBoC will conduct MLF to roll over the maturing loans. Considering there is also CNY50 bn of MoF treasury deposit set to mature on Tuesday. The market lean is that the central bank will probably provide more than the CNY286 bn coming due, adding fresh liquidity into the banking system as it did on Dec 6 amid tightening liquidity into year-end and cash withdrawal demand for Chinese New Year. 

A cut in the 1y MLF rate is not expected today,  but anything other will trigger a positive risk reaction.

There is also the LPR fixing on Dec 20 at 0930 HKT/SGT. The market now expects the December 1y LPR to be fixed 5bp lower compared to November at 4.10%, with the 5y rate remaining unchanged at 4.80%. CPI inflation and pork prices are expected to peak around Chinese New Year in January 2020, so if the MLF rate is held constant today, I think the PBoC will be reluctant to cut the LPR again on Friday.

Sticking to their targeted stimulus approach, China's State Council set the target for micro and small enterprises (MSE) loan growth at the executive meeting on Dec 12. . The cost for inclusive finance loans should be lowered by 0.5% next year, and the MSE loans should grow at a higher rate than other investments. For the top five state-owned banks, the growth rate of inclusive finance loans should be at least 20%. All around positive for risk but far from the deluge the market was hoping for and confirming the markets  overall impression that the CEWC  will not offer up a tremendous policy stimulus impulse in 2020