China Market rebounds 0.7%

Headline indices of the Mainland China equity market closed higher in volatile trade on Tuesday, 07 May 2019, as investors chased for bottom fishing after a 5.6 per cent slump - its steepest decline in three years - on Monday, thanks to reports that Beijing trade negotiators were preparing to go to Washington despite President Donald Trump's threat to escalate their tariff war and U.S. Trade Representative Robert Lighthizer said talks would start Thursday. At closing bell, the benchmark Shanghai Composite Index rebounded 0.7%, or 19.93 points, to 2,926.39. The Shenzhen Composite Index, which tracks stocks on China's second exchange, bounced by 1.62%, or 24.51 points, to 1,540.31. The blue-chip CSI300 index advanced 1%, or 36.05 points, to 3,720.67.

An official confirmation that Chinese Vice-Premier Liu He will visit the US this week for a fresh round of trade talks soothes jittery sentiment. Investors waited to see how Beijing would respond to fresh tariffs threats from U.S. President Donald Trump, which have thrown trade talks between the two sides into doubt. The world's two largest economies are expected to continue talks on Thursday and Friday in Washington for negotiations aimed at ending the tit-for-tat tariff war, as per reports.

 

Market participants are watching closely to see if China will still send top negotiator Vice Premier Liu He to Washington this week for further discussions, after Trump unexpectedly announced he will hike U.S. tariffs on Chinese goods from Friday and impose new levies soon.

US President Donald Trump dramatically increased pressure on China to reach a trade deal on Sunday by announcing he will hike tariffs on $200 billion worth of Chinese goods this week and target hundreds of billions more soon. The announcement via Twitter marks a major shift in tone from Trump, who has cited good progress in the talks and praised his relationship with Chinese President Xi Jinping. The tweets upended the previously calm market mood that had benefited from signs of improving economic growth in China and the United States, and from comments from Trump and other senior U.S. officials that trade talks were going well.

Investors don't want the United States to increase tariffs, because they worry about an all-out trade war. If China were to retaliate with higher tariffs of its own, US companies that do big business in China would end up getting penalized. Companies would then pass the higher import taxes off to customers, hurting demand for goods. Trade wars, in other words, are bad for business, bad for the economy, and bad for the stock market.

Although the administration officials said the increase in tariffs does not signal the talks have broken down, Mnuchin declined to speculate on whether the two countries would be able to close the gap before the end of the week.

CURRENCY NEWS: China's yuan weakened against the U.S. dollar on Tuesday, as China's central bank lowered its official yuan midpoint. Prior to the market opening, the People's Bank of China (PBOC) lowered its official yuan midpoint at 6.7614 per dollar, 270 bps, or 0.4 percent, weaker than the previous fix of 6.7344. Tuesday's official fixing was the softest since 19-Feb-2019, and the move was the biggest one-day weakening in percentage terms since Feb. 11. In the spot market, onshore yuan opened at 6.7750 per dollar and was changing hands at 6.7786 at late afternoon, 164 bps weaker than the previous late session close and 0.25 percent softer than the midpoint.

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