China Stocks end higher on US-China trade deal, RRR cuts

Mainland China equity market finished session higher on Thursday, 02 January 2020, buoyed by easing Sino-U.S. trade tensions, policy easing (RRR cut), and expectations that targeted cuts are on the way to bolster its slowing economy. At closing bell, the benchmark Shanghai Composite Index advanced 1.15%, or 35.07 points, to 3,085.20. The Shenzhen Composite Index, which tracks stocks on China's second exchange, added 1.93%, or 33.22 points, to 1,756.16. The blue-chip CSI300 index was up by 1.36%, or 55.66 points, to 4,152.24.

Market risk sentiments improved amid Sino-U.S. trade deal progress. The U.S. President Donald Trump said on Tuesday that Phase 1 of trade deal with China would be signed on Jan. 15 at the White House. That came following reports indicating Chinese Vice Premier Liu He, Beijing's top trade negotiator, could sign the agreement.

News of monetary policy easing by China also aided sentiment after the country's central bank on Wednesday cut the amount of cash that banks must hold as reserves to boost the economy. The People's Bank of China announced on Wednesday that it was going to lower the reserve requirement ratio for banks by 50 basis points with effect from Jan. 6, unleashing about 800 billion yuan ($115 billion) in funds. While the cut was not a surprise, the early announcement suggests policy makers may add more liquidity in the next few weeks to match cash demands ahead of the Lunar New Year.

Kweichow Moutai (600519 CH), the world's most valuable liquor distiller, slumped 4.5% to 1,130 yuan, after its announced that it expected to post net profits of 40.5 billion yuan in 2019, up 15% year on year, which fell below analysts' expectations.

ECONOMIC NEWS: China Manufacturing PMI Edges Lower In December -China's manufacturing Purchasing Managers' Index fell moderately to 51.5 in December from 51.8 in November, survey results from IHS Markit showed on Thursday. Nonetheless, a score above 50 indicates expansion in the sector. Although conditions strengthened in each of the past five months, the PMI reading was the lowest seen since September, the survey revealed. Official PMI data released earlier this week for December matched November's level of growth at 50.2.

CURRENCY NEWS: China's yuan eased against the dollar on Thursday, despite firmer mid-point fixing by the People's Bank of China (PBOC) after Beijing said it would cut the cash banks must hold as reserves to spur lending and support the slowing economy. The PBOC set the midpoint rate CNY=PBOC at 6.9614 per dollar prior to market opening, 148 bps or 0.2% firmer than the previous fix of 6.9762. In the spot market, onshore yuan CNY=CFXS opened at 6.9670 per dollar and was changing hands at 6.9663 at midday, 31 bps firmer than the previous late session close.

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