China Market extends losses as Sino-U.S. trade rhetoric heated

Headline indices of the Mainland China equity market declined on the first trading day of the week and month, Monday, 3 June 2019, as risk sentiments hurt amid escalating US-China trade tensions and its impact over the state of global trade. At closing bell, the benchmark Shanghai Composite Index declined 0.4%, or 10.40 points, to 2,888.30. The Shenzhen Composite Index, which tracks stocks on China's second exchange, was down 1.1%, or 17.14 points, to 1,514.72. The blue-chip CSI300 index fell 0.04%, or 1.32 points, to 3,628.47.

The risk aversion selloff continued as US-China trade tensions have ratcheted up significantly in recent weeks, with the Trump administration pursuing a multipronged approach of imposing protectionist measures to cut the large bilateral trade deficit.

President Donald Trump raised tariffs on May 10 on $200 billion of Chinese imports to 25% from 10% previously. An increase in Chinese tariffs on most U.S. imports on a $60 billion target list took effect as planned on Saturday.

A policy paper published by the Chinese government on Sunday said that latest U.S. tariffs on Chinese imports will not resolve the two countries' trade issues, and the United States bears responsibility for setbacks in trade talks.

Investors were worries that a prolonged U.S.-China trade war and Washington's tariff threat to Mexico could derail the global economy. On Friday, the Trump administration eliminated India's ability to export products to the US duty-free. Further, President Trump threatened to impose tariffs on Mexico over immigration. Meanwhile, China implemented tariff hikes Saturday and launched an investigation into FedEx after it diverted two parcels destined for Huawei addresses in Asia to the United States.

A senior Chinese official said on Sunday that United States cannot use pressure to force a trade deal on China, refusing to be drawn on whether the leaders of the two countries would meet at the G20 summit to bash out an agreement. China threatened on Friday to unveil an unprecedented hit-list of unreliable foreign firms, groups and individuals that harm the interests of Chinese companies, as a slate of retaliatory tariffs on imported U.S. goods.

With the US and China set for a long drawn out trade war, the markets have begun pricing the possibility the Federal Reserve will cut its target rate by a half-percentage point by year-end. Goldman Sachs also sees a higher chance of rate cut but believes it is a close call as the economic outlook has not changed much.

Data from a private survey on Monday showed that Chinese manufacturing activity was better than expected in May. The Caixin/Markit factory Purchasing Managers' Index for May was 50.2. The PMI reading for April was 50.2. PMI readings above 50 indicate expansion, while those below that signal contraction. Last week, China's official manufacturing PMI for May came in at 49.4, lower than April's reading of 50.1. The official non-manufacturing PMI for May was 54.3 unchanged from April.

CURRENCY NEWS: China yuan was tad higher against greenback on Monday, inline with strong mid-point fixing by central bank. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.8896 per dollar, 0.14% firmer than the previous fix of 6.8992. In the spot market, onshore yuan was changing hands at 6.9025 at around afternoon, 15 bps firmer than the previous late session close but 0.19% softer than the midpoint. The yuan has fallen about 8% against the US dollar since the trade war started in July last year

Powered by Capital Market - Live News