Daily Comment (April 20, 2016)

by Bill O’Grady and Kaisa Stucke

[Posted: 9:30 AM EDT] Chinese risk markets traded lower overnight as Chinese officials indicated that the People’s Bank of China (PBOC) is likely to reduce stimulus over the coming year due to improving economic data.  While the PBOC has not released an official statement, at least two government sources have hinted at the stimulus deceleration.  Late last night, a PBOC official said that the central bank will balance the need for continued economic growth support with the risks that additional stimulus could pose—especially the over-leveraging of the corporate sector.  At the same time, the PBOC injected the most funds into the economy in two months in anticipation of a seasonal cash squeeze, auctioning $38.7 bn of seven-day reverse-repo agreements.  The chart below shows the volume of seven-day reverse repos auctioned since the beginning of the year.  Even though liquidity should improve as a result of the cash injections, the impending maturation of medium-term lending facility loans, tax bills and payments of required reserves will drain more than the injected amount from the economy.

(Source: Bloomberg)

In other news, crude fell overnight as the Kuwaiti workers’ strike came to an end.  This should boost production, adding to ample global supplies.  On the political front, Trump and Clinton won the New York state primaries, leading the two front-runners to re-assert their positions as their parties’ possible nominees.

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