Under the backdrop of geopolitical shocks and rising global inflation expectations, China's financial market is showing a structural divergence with "stable exchange rates, weak bonds, and falling stocks".
Exchange Rate: Resilience of the Renminbi
The Renminbi rose by 0.31% against the US dollar this week, remaining relatively stable despite the high levels of the dollar index.
The supporting factors mainly stem from buoyant foreign trade and corporate settlement demands, but short-term trends will still be dominated by the dollar and geopolitical risks.
Liquidity and Policy: Central Bank Shifts to Net Injection
The People's Bank of China injected a net 65.8 billion yuan into the open market this week, indicating a policy intent to maintain liquidity stability amidst tax periods and market fluctuations.
The Loan Prime Rate (LPR) has remained unchanged for the 10th consecutive month, reflecting low urgency for rate cuts, with policy still in an observation period.
Bond Market: Yield Curve Steepening
Under the influence of inflation expectations driven by rising oil prices:
- Long-term rates are rising: the 30-year government bond has climbed back above 2.3%.
- Short-term rates are falling: the one-year interbank certificate of deposit has dropped to about 1.52%.
The divergence between long and short ends is driving the yield curve to steepen.
Bill Market: Demand Drives Rates Down
The 6-month bill rate has fallen to approximately 1.19%, reflecting weak credit demand and increased bank allocation needs.
Stock Market: Stagflation Trading Suppresses Risk Assets
The Shanghai Composite Index fell by 3.4% this week, dropping below a key psychological level. The cyclical sector led the declines, with non-ferrous metals and chemical sectors falling by more than 10%.
The market generally believes that the expectation of stagflation driven by rising oil prices and geopolitical conflicts is the core factor behind this round of adjustments.
