Michael Wan at MUFG reports that China’s manufacturing and non-manufacturing PMI data surprised on the upside, easing fears of imminent policy easing. He notes that a recent PBOC overnight reverse repo carried a lower-than-expected coupon, but argues that China’s operational monetary policy target will not immediately shift to the overnight rate, with the 7‑day reverse repo rate remaining the key gauge.

Stronger PMIs temper easing fears

"In Asia, China’s manufacturing and non-manufacturing PMI numbers came in somewhat stronger than expected, and this helped to allay some initial concerns around imminent easing."

"This was especially as the PBOC’s recent overnight reverse repo operations were reported to have included a coupon below market expectations at 1.25% (versus most analysts thinking of 1.3%-1.4%)."

"Overall, we don’t think that the operational target of monetary policy in China will change immediately to the overnight rate, with the 7-day reverse repo rate still the key metric to watch for to determine the monetary policy stance."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)