China Stocks extends loss as trade conflict persists

Headline indices of the Mainland China equity market closed down on Monday, 06 August 2018, as risk aversion selloff continued on tit-for-tat Sino-US trade conflict outweighing the boost to sentiment from Chinese authorities' intervention last week to shore up its currency. At closing bell, the benchmark Shanghai Composite Index declined 1.3%, or 35.29 points, to 2,705.16, meanwhile the Shenzhen Composite Index, which tracks stocks on China's second exchange, fell 2.1% or 30.97 points, to 1,455.09. The blue-chip CSI300 index dropped 1.27%, or 42.01 points, to 3,273.27.

The volatility in Chinese markets comes after the Shanghai indexes had suffered their biggest losses since February last week, weighed by a combination of weak economic data and concerns over the growth impact from the trade war.

The trade dispute remains a live issue for markets with China had fired the latest volley in the trade war on Friday, proposing differentiated retaliatory tariffs on $60 billion worth of US goods ranging from liquefied natural gas (LNG) to some aircraft. The move followed a proposal by the Trump administration of higher 25 per cent tariffs on $200 billion worth of Chinese imports to the United States. At the same time, Trump said his strategy of placing steep tariffs on Chinese imports is "working far better than anyone ever anticipated", citing losses in China's stock market.

Investor focus has shifted to the yuan after the People's Bank of China on Friday made it more expensive to bet against the currency, which helped it rebound from a 15-month low against the greenback. Also on Friday, China's central bank had said it will be setting a reserve requirement ratio of 20 per cent from Monday for financial institutions settling foreign exchange forward dollar sales to clients, effectively raising the cost for investors shorting the yuan.

CURRENCY NEWS: Chinese yuan softened against greenback on Monday, after weak mid-point fixing by central bank. The People's Bank of China (PBOC) set the mid-price for yuan trading at 6.8513, which is 191 basis points weaker than Friday's mid-price of 6.8322. In China's spot foreign exchange market, the yuan is allowed to rise or fall by 2% from the central parity rate each trading day. Onshore yuan, which is traded by mainland traders, trimmed earlier gains and was little changed at 6.8300 per dollar

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