China Market falls on escalating trade issues

The Mainland China equity market closed stronger on Friday 23 August 2019, as escalating trade issues between in the US-China trade wreaked havoc on risk assets. Most of sectors closed firmly in negative territory, with energy, materials, and technology issues being notable losers, as the intensifying trade war seems further away from a resolution. At closing bell, the benchmark Shanghai Composite Index declined 1.17%, or 33.86 points, to 2,863.57. The Shenzhen Composite Index, which tracks stocks on China's second exchange, dropped 0.77%, or 12.12 points, to 1,566.57. The blue-chip CSI300 index sank 1.44%, or 54.95 points, to 3,765.91.

The sell-off in Mainland China market triggered after the US markets sunk over the weekend upon yet another escalation in the US-China trade war. The US President Donald Trump announced a 5% additional duty on $550 billion in targeted Chinese goods, hours after China unveiled retaliatory tariffs on $75 billion worth of U.S. products with new tariffs and hikes to existing duties.

On Friday, the US said it would begin the process of raising tariffs on around $250 billion of Chinese imports from 25% to 30%. Those hikes will be introduced from 1 October. The US also said fresh tariffs on an additional $300 billion of Chinese goods, announced earlier this month, will now be at a rate of 15% instead of 10%. The first batch of those tariffs will be introduced in September. In a tweet, Mr Trump said he planned to order US firms working in China to move their operations back to the US. It is unclear how he could force firms to comply.

The world's two largest economies have been locked in a bruising trade battle for the past year that has seen tariffs imposed on billions of dollars worth of one another's goods. Mr Trump has long accused China of unfair trading practices and intellectual property theft. In China, there is a perception that the US is trying to curb its rise.

Global markets are closely watching for any further economic support measures from Beijing as a bruising trade war with the United States saps confidence, business profits and overall growth.

CURRENCY NEWS: The Chinese currency was little changed against the dollar on Monday. Prior to the market opening, the People's Bank of China (PBOC) fixed the yuan's midpoint at a relatively steady at 7.0570 per dollar. The offshore Chinese yuan fell to a record low against the dollar. It last traded at 7.1619. Its onshore counterpart was at 7.1414 against the greenback.

China's central bank kept the interest rate on its medium-term lending facility (MLF) unchanged on Monday, just a week after slightly lowering a new lending benchmark rate for bank loans designed to reduce borrowing costs. The People's Bank of China (PBOC) said that the interest rate on one-year MLF loans remained at 3.3%, the same as the previous operations. The PBOC also said it has injected 150 billion yuan to financial institutions via the liquidity tool. On Monday, a batch of 149 billion yuan worth of one-year MLF loans was due to mature.

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