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PBOC Cuts Loan Prime Rate, China Buyers Bid for US Agricultural Products

Key News

Asian equity markets ended the session mostly lower last night except for Shanghai, Shenzhen, the Philippines, Indonesia, and New Zealand. While Mainland China markets mostly followed Wall Street higher last night, it seems that most of Asia was unable to keep up the pace.

In coronavirus news, new cured cases outpaced new confirmed cases for the first time on Thursday. Reporting on this positive development likely boosted markets in Mainland China. Many workers in China remain at home. However, remote working tools offered by the likes of Tencent, Alibaba, and Bytedance have allowed many in white collar industries to continue to do their jobs. In Japan, passengers have been released from the infected cruise ship Diamond Princess. 634 passengers and crew members were diagnosed with the virus out of the over 3,000 that were tested. The Japanese government has been criticized for its slow response to the issue.

As has been abundantly clear, China’s stock markets continue to rally in the face of the virus. Individuals are clearly saving and investing more during the trying period. According to data from Alipay, average daily purchases of mutual funds by its users has increased 400% since before the Lunar New Year.

The PBOC cut the loan prime rate by 10bp last night, lowering the key lending rate from 4.15% to 4.05%. The move was accompanied by the release of credit data for January indicating a credit expansion during the month. The central bank continues to pledge support for the economy for the duration of the viral outbreak. Special measures for this trying period include lowering lending rates, increasing credit support, and providing more medium to long-term loans.

Chinese buyers are officially active in the market for American agricultural products as they begin to fulfill phase one trade deal commitments. Buyers have begun bidding for US sorghum to be shipped over within the first half of the year and are inquiring about soybean prices.

January Loan Data

New Yuan Loans 3,340 billion versus December’s 1,140 billion
Loan Growth YoY 12.1% versus December’s 12.3%
M2 Growth YoY 8.4% versus estimate 8.5% and December’s 8.7%

Key Takeaways: As expected, loan growth was high in January. Nonetheless, M2 or overall credit in the economy actually grew by slightly less than expected. As deleveraging was a priority for nearly all of 2019, a temporary halt in the process in response to virus risks is unlikely to threaten overall progress in that arena. The PBOC has said that it will return to long-term policy goals as soon as key economic indicators show that the worst is over.

H-Share Update

The Hang Seng finished the session down by -0.2% last night. However, turnover rose 14% DoD to HKD 100.9 billion. Southbound investors bought a net HKD 1.2 billion worth of Hong Kong stocks last night. Mainland properties names came under pressure last night as the 10bp LPR cut appeared to underwhelm many real estate investors. Macau gaming names experienced pressure despite reopening some casinos today. Only 29 of the 41 casinos reopened. The Hong Kong stocks within the MSCI China All Shares Index led declines -0.01%.

A-Share Update

The Shanghai and Shenzhen rose by +1.8% and +2.2%, respectively. After heading somewhat lower in morning trading, both indexes ended the session up. Northbound investors bought a net RMB 3.9 billion worth of Mainland stocks last night. Chipmakers and semiconductor names continued their recent rally, sending the ChiNext Index higher. Recent laggards including consumer staples are beginning to see a comeback from recent lows. The Mainland stocks within the MSCI China All Shares Index led gains +0.7%. Financials led sector moves in the index +0.29%, while real estate led declines -0.04%.

Last Night’s Prices & Yields

Government bond yields were mixed last night following declines in the previous period, which signaled some risk-on sentiment. CNY fell against the dollar and Euro but rose against the Pound.

  • Yield on 1-Day Government Bond 1.27% versus 1.31% yesterday
  • Yield on 10-Year Government Bond 2.89% versus 2.88% yesterday
  • Yield on 10-Year China Development Bank Bond 3.29% versus 3.29% yesterday
  • CNY/USD 7.02 versus 7.00 yesterday
  • CNY/EUR 7.60 versus 7.55 yesterday
  • CNY/GBP 9.04 versus 9.06 yesterday