Seemingly calm market with deteriorated sentiment

• China's FX markets have remained quite calm towards the year-end. The RMB appreciated slightly against the greenback in both onshore and offshore markets due to the weakness of USD in November.
•  Interbank rates increased across the board. In particular, SHIBOR hovered around the yearly high of 4.80. China sovereign yields also breached the 4% threshold repeatedly in November, reflecting increasing concerns on slightly tightened liquidity and financial conditions.
•  The PBoC made a symbolic move on Dec 14th (the first since March 2017) to raise reverse repo and MLF rates by 5 bps following the Fed's hike. The action is expected to signal its determination to defend the currency and help deleveraging in the system.
•  Although the Fed normalization poses some depreciation pressure on the currency, we do not expect the process to be rapid as the authorities has demonstrated their determination to maintain currency stability by nudging up rates slightly right after the FED’s move.

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