China Market mixed as central bank pumps funds into market via TMLF

Headline indices of the Mainland China equity market were mixed on Wednesday, 23 January 2019, on the back of liquidity injection from China's central bank into the banking system through a new tool offset concerns about slowing global growth and anxiety over a yet-unresolved Sino-US trade dispute. Around afternoon trade, the benchmark Shanghai Composite Index rose 0.1%, or 1.91 points, to 2,581.62. The Shenzhen Composite Index, which tracks stocks on China's second exchange, was down 0.05%, or 0.66 points, to 1,313.93. The blue-chip CSI300 index edged up 0.05%, or 1.52 points, to 3,144.84.

The People's Bank of China offered 257.5 billion yuan ($38 billion) of funds into the market via the targeted medium-term lending facility (TMLF) tool, part of efforts to encourage lending to small businesses and bolster growth and to maintain liquidity. The funds have a maximum maturity of three years and an annual interest rate of 3.15%, 15 basis points lower than the existing medium-term lending facility (MLF), according to the People's Bank of China (PBOC). The TMLF tool was introduced in December 2018 to encourage loans to small and private businesses. Large commercial banks, joint-stock banks and major city commercial banks that lend heavily to the real economy and meet macro prudent requirements can apply for the TMLF, according to the PBOC. During the past week, the People's Bank of China, the country's central bank, had a combined net injection of 1.16 trillion yuan via open market operations, the largest weekly amount in two years. China will cut the reserve requirement ratio for RMB deposits by another 0.5 percentage points on Jan. 25, following a reduction of 0.5 percentage points on Jan. 15, which is expected to offset liquidity fluctuations before the Spring Festival, according to a previous announcement by the central bank.

Market risk sentiments remain subdued on reports that the U.S. had cancelled a trade meeting with Chinese officials. White House economic advisor Larry Kudlow, however, denied that report, telling that there was never a planned meeting other than the scheduled visit by Chinese Vice Premier Liu He next week. The U.S. and China are aiming to strike a deal to break their trade impasse before March 1. The two economic powerhouses have been locked in an ongoing trade war since 2018 which has seen both sides slap billions of dollars worth of tariffs on each other's goods.

On Monday, the International Monetary Fund (IMF) in its latest World Economic Outlook has downgraded its global growth forecast for 2019 to 3.5% and 3.6% for 2020 - 0.2% and 0.1% respectively below its previous prediction, citing a bigger-than-expected slowdown in China and the Eurozone, and said failure to resolve trade tensions could further destabilise a slowing global economy. Growth in China last year was the slowest since 1990 and investors are hoping for a breakthrough in US-Sino trade talks, with the tariff dispute between the world's largest economies already rippling through financial markets and global growth.

CURRENCY NEWS: The People's Bank of China (PBOC) set the yuan reference rate at 6.7969, weakened 115.00 basis points from the previous day's fix of 6.7854. In China's spot foreign exchange market, the yuan is allowed to rise or fall by 2% from the central parity rate each trading day.

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