China Market tumbles as Sino-US trade war escalates

The Mainland China equity market stumbled to lowest level in more than five-months on Tuesday, 06 August 2019, weighed down by escalating U.S.-China trade conflict after Washington designated Beijing a currency manipulator following an unexpectedly sharp drop in the yuan on Monday and China halted purchases of U.S. farm goods in response to new American tariffs. Around late afternoon, the benchmark Shanghai Composite Index tumbled 1.72%, or 48.67 points, to 2,772.83. The Shenzhen Composite Index, which tracks stocks on China's second exchange, dropped 2%, or 30.09 points, to 1,487.18. The blue-chip CSI300 index stumbled 1.22%, or 44.80 points, to 3,630.89.

The Tuesday session in Mainland China market followed overnight declines on Wall Street, where the Dow Jones Industrial Average plunged more than 700 points, the S&P 500 dropped nearly 3% and the Nasdaq Composite fell 3.5%, due to souring relationship between the world's two most powerful economies.

 

Investors around the world scrambled to sell on worries about how much President Donald Trump's worsening trade war will damage the global economy. Beijing allowed its yuan to fall past the politically sensitive level of seven to the dollar on Monday following Trump's threat last week to extend punitive tariffs to an additional $300 billion of Chinese imports. Also, the Ministry of Commerce announced it was suspending promised purchases of American farm products.

The Trump administration formally labelled China a currency manipulator, further escalating its trade war with Beijing after the country's central bank allowed the yuan to fall in retaliation for new US tariffs.

The two countries escalated their trade war after Mnuchin and US Trade Representative Robert Lighthizer returned from meetings with counterparts in Shanghai last week without progress toward a deal to resolve American complaints about China's economic practices. Trump ordered 10% tariffs on about $US300 billion ($440 billion) in Chinese imports to begin September 1, barring a breakthrough in negotiations.

China retaliated earlier on Monday, allowing the yuan to fall and announcing it would cease purchases of US farm goods.

CURRENCY NEWS: China yuan depreciated to 11-year lows against greenback on Tuesday, despite firmer midpoint fixing by central bank and amid mounting fears over a sharp escalation in the U.S.-China trade war. The PBoC set the midpoint for the USD/CNY at 6.9683, above the previous fix of 6.9225 but below the 7.0458 level it closed on Monday. A higher number means the yuan has been allowed weaken against the US dollar. Each day, the PBoC permits the USD/CNY to trade 2% either side from the fixing level. In early trade, the USD/CNY sits at 7.0567, the weakest level since 2008.

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