ChiXi Consultants - China Moves to Boost Liquidity amid US Trade War

ChiXi Consultants - China Moves to Boost Liquidity amid US Trade War

"The ongoing China-US trade war is imposing headwind to China's growth, and monetary easing is being used to counter that", ChiXi Consultants said in a research note to its clients on Monday.

The surge in PetroChina has temporarily held in check a sell-off that sent the Shanghai Composite down by 3.7 per cent on Monday for its biggest loss in nearly four months. "And today's fall is not surprising after weak performance in external markets during the holiday".

The U.S. -China trade rift has been the buzzing topic since last few months as the U.S. government imposed three rounds of tariffs on Chinese goods that totals up to $250 billion. The yuan market at 0414 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.8571 6.844 -0.19% Spot yuan 6.8703 6.861 -0.14% Divergence from 0.19% midpoint* Spot change YTD -5.29% Spot change since 2005 20.47% revaluation Key indexes: Item Current Previous Change Thomson 92.76 92.87 -0.1 Reuters/HKEX CNH index Dollar index 94.143 94.133 0.0 *Divergence of the dollar/yuan exchange rate. On Friday, Chinese technology stocks listed in Hong Kong, including Lenovo and ZTE, slumped on a media report that the systems of multiple USA companies had been compromised by malicious computer chips inserted by Chinese spies.

Equity markets around the world came under pressure last week after a steep sell-off in U.S. Treasuries, prompted by hawkish comments from U.S. Federal Reserve officials and data widely seen as bolstering the case of further U.S. rate hikes.

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Foreigners dumped 9.7 billion yuan (S$1.94 billion) of A shares through exchange links with Hong Kong on Monday, just short of a record hit eight months ago, as mainland markets reopened after a week-long break. Shenzhen-listed shares of ZTE was down over 8 per cent at close.

On Wall Street, the Dow Jones Industrial Average fell 0.68 percent and the S&P 500 lost 0.55 percent, while the Nasdaq Composite dropped 1.16 percent - its first weekly percentage decline since March.

Chilling global markets on Monday, Chinese shares .CSI300.SSEC slumped and the yuan CNY=CFXS fell despite Beijing saying it would slash the amount of cash that commercial lenders need to set aside, releasing a net 750 billion yuan ($108 billion) into the banking system. In June, the gap was more than 70 bps, and traders say any further narrowing could increase capital outflows from China. "Liquidity is not the issue". Analysts said the sudden surge in interest rates had deepened worries about higher inflation and an uptick in costs for loans and mortgages.

"Some of the difficulties encountered by enterprises are brought about by trade frictions and some due to China's economic transformation", Ning said. "The narrowing interest rate differentials between China and the United States will exert more downward pressure on the RMB", wrote Nathan Chow, strategist at DBS Group Research. Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.9523, 1.37 percent weaker than the midpoint.

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