China Stocks fall 1% on global gloom

Headline shares of the Mainland China equity market were lower on Friday, 21 December 2018, as threat of a US government shutdown and of further hikes in US borrowing costs inflamed investor unease over the economic outlook. In late afternoon trade, the benchmark Shanghai Composite Index fell 1%, or 25.49 points, to 2,510.78, meanwhile the Shenzhen Composite Index, which tracks stocks on China's second exchange, shed 1%, or 12.45 points, to 1,284.66. The blue-chip CSI300 index was down 1.4%, or 42.28 points, to 3,025.14. The Shanghai composite and main Shenzhen index are down more than 20 and 30 percent, respectively, this year, putting Chinese stocks among the worst performers globally.

World equity markets slumped after threat of a US government shutdown and of further hikes in US borrowing costs inflamed investor unease over the economic outlook. The US Federal Reserve dashed investor hopes of a more dovish policy outlook even as signs grow that global economic growth is stuttering. Jitters over the Fed's move to largely keep guidance for additional hikes over the next two years spread from Asia to Europe, where major indexes fell to their lowest in two years and investors headed for the relative safety of government debt. The Fed raised key overnight lending rates by 0.25 percent point as expected to a range of 2.25 percent to 2.50 percent.

There is also concern over US government funding, with about 25% of the federal government running out of funding midnight Friday. "The Senate passed a bill extending funding to 8 February, after which many senators left Washington, DC. But House Speaker Ryan met with President Trump and then announced that Trump said he would not sign the bill if the House passed it because it lacked $5bn for a border wall,"

The possibility of a shutdown worsened after the Federal Reserve announced another interest rate hike on Wednesday and made only subtle adjustments to the course of monetary policy tightening next year despite rising worries about global growth. The Fed's move on Wednesday to largely adhere to its plan for more rate hikes over the next two years and keep its balance sheet reduction plan on "autopilot" spooked investors already worried about slowing economic growth.

Markets were further spooked when US President Donald Trump refused to sign legislation to fund the US government unless he got money for a border wall, thus risking a partial federal shutdown on Saturday. President Donald Trump told Republican congressional leaders he will not sign a government funding bill because it fails to include enough funding for border security.

For the meantime, risks are political given the US Justice Department's allegations against two Chinese nationals which is a spanner in the works with respect Sino/US trade relations.

CURRENCY NEWS: China yuan appreciated against greenback on Friday, as central bank set stronger mid-point rate. Prior to market opening, the People's Bank of China set the midpoint rate at 6.8825 vs the previous day's fix of 6.8936.

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