China Market falls after weeklong layoff

The Mainland China equity market stumbled on Monday, 08 October 2018, as traders in China returned to work after a weeklong Golden Week holiday, following last week's wide selling in Asia and a U.S.-listed benchmark of mainland companies falling nearly 5%, as worries grow of a sharp knock to growth from an escalating trade dispute with the United States. Market participants largely ignored the latest percentage-point cut in banks' reserve-requirement ratios announced Sunday. Around late afternoon trade, the benchmark Shanghai Composite Index stumbled 2.65%, or 74.82 points, to 2,746.53, meanwhile the Shenzhen Composite Index, which tracks stocks on China's second exchange, fell 2.7%, or 38.76 points, to 1,402.78. The blue-chip CSI300 index dropped 3.3%, or 112.29 points, to 3,326.57.

China's central bank moved on Sunday to support the economy by slashing the level of cash that banks must hold as reserves. It was the fourth cut this year and comes as the economy struggles with the drag from an escalating trade dispute with the United States. Reserve requirement ratios (RRRs) - currently 15.5% for large commercial lenders and 13.5% for smaller banks - would be cut by 100 basis points effective Oct. 15, the PBOC said, matching a similar-sized move in April.

ECONOMIC NEWS: China foreign reserves slip to $3 Trillion in September-- China's foreign exchange reserves edged down 0.7 percent or 22.7 billion U.S. dollars from a month earlier, to 3.087 trillion U.S. dollars by the end of September, the central bank said Sunday. This was attributed to a number of factors including exchange rate conversion and changing asset prices.

China Caixin services activity post modest gain-- Latest data from Caixin showed the improved services activity in China was offset by softer manufacturing growth. The seasonally adjusted Caixin China General Services Business Activity Index was up from 51.5 in August to 53.1, strongest improvement in last three months. In contrast, manufacturing production grew at a marginal pace, weakest since October 2017. Caixin Composite PMI was little changed at 52.1, from 52.0 in August.

CURRENC NEWS: China's yuan declined against the U.S. dollar on Monday, inline with soft mid-point fixing by People Bank of China. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.8957per dollar its weakest level since May 11, 2017. China's yuan was weaker at 6.8979 per U.S. dollar, compared with a previous onshore close of 6.8725 per dollar. The offshore yuan was also weaker at 6.9039 per dollar.

Higher yields on U.S. Treasuries are likely to put more pressure on the yuan as China continues to make use of targeted policy easing to energize the domestic economy. On Monday, the spread between Chinese and U.S. 10-year Treasury bonds was 58.4 basis points, compared with 150 basis points at the end of 2017.

OFFSHORE MARKET NEWS, US stock market closed down on Friday, as treasury yields extended a recent upward move following the release of the monthly jobs report, adding to recent concerns about the outlook for interest rates. The Dow Jones Industrial Average slid 180.43 points or 0.7% to 26,447.05, the Nasdaq tumbled 91.06 points or 1.2% to 7,788.45 and the S&P 500 fell 16.04 points or 0.6% to 2,885.57.

The major European markets ended down on Friday. The U.K.'s FTSE 100 Index tumbled by 1.4%, while the German DAX Index and the French CAC 40 Index slumped by 1.1% and 1%, respectively.

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