China Market surges after PBOC signals its support

The Mainland China equity market advanced on Monday, 27 August 2018, on tracking firm cues from global markets after Fed Chairman Jerome Powell reiterated the central bank's stance that further gradual increases in interest rates will likely be appropriate in view of strong growth in income and jobs. The gains were further propelled by the People's Bank of China announcement that it was tweaking its methodology for the fixing of the yuan's daily midpoint in an effort to stabilize the currency market. Around afternoon trade, the benchmark Shanghai Composite Index inclined 1.53%, or 41.76 points, to 2,771.19, while the Shenzhen Composite Index, which tracks stocks on China's second exchange, rose 2.15%, or 31.33 points, to 1,491.67. The blue-chip CSI300 index added 2.03%, or 67.59 points, to 3,392.92.

Last Friday, speaking at a research symposium in Jackson Hole, Wyoming, where leading central bankers met to discuss the future of monetary policy, the U.S. Federal Reserve Chairman Jerome Powell said the Fed's gradual interest rate hikes were the best way to protect the economic recovery, maintain strong job growth and keep inflation under control.

 

The People's Bank of China (PBOC) said on Friday that it was adjusting the way it calculates the yuan's official midpoint to keep it more stable amid dollar strength and trade tensions between Washington and Beijing. The move to stabilize the yuan came a day after the latest Sino-U.S. talks aimed at resolving the trade war ended with little progress, with tougher U.S. measures expected to kick in next month that could add more pressure on the Chinese currency. It also comes as leaders try to temper trade tensions with the United States, with Donald Trump accusing Beijing of keeping the yuan artificially low to boost its exports and offset the impact of tariffs.

CURRENCY NEWS: China's yuan gained to2-1/2-week high against the U.S. dollar on Monday, inline with firmer mid-point fixing by People Bank of China and as the central bank signaled that it's taking action to support the currency through its daily fixing. China's central bank revived a counter-cyclical factor in its daily fixing to support the currency, arresting a record 10-week slide that has rattled global markets. Prior to the market opening on Monday, the PBOC lifted its official yuan midpoint more than expected to 6.8508 per dollar, 202 pips, or 0.3%, firmer than the previous fix of 6.8710 on Friday. The yuan opened onshore trade at 6.8080 per dollar, the strongest level since Aug.8. Around afternoon, it was trading at 6.8205, weaker by 15 pips than the previous late session close. Its offshore counterpart followed, rising to a high of 6.7818, its strongest since July 31. It traded at 6.8087 around afternoon trade.

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