Morning Brief – Liquidity and data

Markets were largely in a mixed mood during the Asian session as traders started to slow down for the new year holiday celebration amidst a very quiet trading week.

For the week the People’s Bank of China injected a net 975bn yuan. This is the largest weekly injection since January of 2019.  The PBOC set the USD/CNY reference rate today at 6.9646.

Ensuring banking system liquidity over the new year will be part of the reasoning for this. I suspect three is more to the huge dump of liquidity into markets than just this though.

The Bank of Japan also conducted an unscheduled Japanese Government Bond buying operation again today. Please note that this was the third day in a row.

The Bank of Japan buys Japanese Government Bonds (JGBs) as part of its yield curve control (YCC) program to maintain loose monetary policy. And has recently hinted at a chance in policy.

Accordingly the markets focus now shifts to data from China on Saturday. There is an expected that China PMI data could be better than previous months.

The official NBS Manufacturing PMI declined to 48.0 in November 2022 from 49.2, below market forecasts of 49.0. This was the second straight month of contraction in factory activity and the steepest pace since April, amid a new wave of COVID cases and tough restrictions in some large cities.

Output (47.8 vs 49.6 in October), new orders (46.4 vs 48.1), and export sales (46.7 vs 47.6) all fell at faster paces. Also, employment stayed weak, dropping the most in seven months (47.4 vs 48.3); and buying activity declined for the second month in a row, with the rate of fall the steepest since April.

At the same time, delivery time lengthened the most in six months (46.7 vs 47.1). On the price front, input cost rose the least since August (50.7 vs 53.3); while a fall in output charges extended for the seventh month running (47.4 vs 48.7). Finally, business sentiment turned downbeat following months of optimism (48.9 vs 52.6).