It has been reported in weekend news that China’s central bank said it will inject 1.2 trillion yuan ($174 billion) worth of liquidity into the markets via reverse repo operations on Monday as its stock markets prepare to reopen amid an outbreak of a new coronavirus.
Reuters reports that the "Chinese authorities have pledged to use various monetary policy tools to ensure liquidity remains reasonably ample and to support firms affected by the virus epidemic, which has so far claimed 305 lives, all but one in China."
Key notes
The People’s Bank of China made the announcement in a statement on Sunday, adding the total liquidity in the banking system will be 900 billion yuan higher than the same period in 2019 after the injection.
According to Reuters calculations based on official central bank data, 1.05 trillion yuan worth of reverse repos are set to mature on Monday, meaning that 150 billion yuan in net cash will be injected.
Investors are bracing for a volatile session in Chinese markets when onshore trades resume on Monday after a break for the Lunar New Year which was extended by the government.China’s stock, currency and bond markets have all been closed since Jan. 23 and had been due to re-open last Friday.
FX implications
This can only be a positive thing at first glance, although, on deeper inspection, here are real concerns which markets may decide heed warning from, weighing on risk sentiment as the underbelly to this yar's start. The yen has been picking up the flows and gold will remain underpinned, especially in a softer US dollar environment while stocks and US yields bleed out.
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