Highlights:

• The People’s Bank of China (PBoC) today cut the Medium-term lending facility (MLF) rate by 15 bps and the 7-day reverse repo rate by 10 bps. The move came just before disappointing real activity data were published. Fiscal policy has so far released only a range of incremental measures which failed to lift sentiment. 
• Real activity had a poor start into Q3, with all data coming in weaker than expected after last week’s trade data already showed new lows. Property was still a major drag. China’s largest property developer “Country Garden”, seeking to delay onshore bond repayment, was adding to market worries.
• Headline inflation also turned negatively with a rate of -0.3% yoy, mainly driven by food prices while core inflation “doubled” to 0.8% yoy.
• Looking ahead, unless fiscal policy becomes more supportive, we see weakness to remain. This will likely prompt the PBoC to more action. We still await a 25 bps reserve requirement rate (RRR) cut and expect another 15 bps reduction in the MLF rate and reverse repo rate by year-end. We see the 5% growth target under threat. 
   

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