China: Not a rate cut cycle yet
The PBoC cut the 1Y MLF rate by 10bps to 2.75% this morning.
The latest batch of macro data in July is discouraging.
Retail sales growth decelerated from 3.1% YoY in June to 2.7% in July.
Export-led industrial production edged down from 3.9% to 3.8%.
Fixed asset investment fell visibly from 6.1% YoY YTD to 5.7%.
Implication to our investors:
(i) We expect another 20bps of 1Y-LPR and MLF cut in this year only. The PBoC could also cut the RRR by 50bps.
(ii) 2Y and 10Y CGB yields will hover around 2.2% and 2.7% in 2022 respectively.