You are here: Home » Reuters » News
Business Standard

China shares gain, yuan up on Sino-U.S. trade war pause

Reuters  |  SHANGHAI/HONG KONG 

By and Noah Sin

SHANGHAI/HONG KONG (Reuters) - Chinese shares, commodities and the yuan currency jumped on Monday after Chinese and U.S. leaders agreed to a temporary truce in their bitter trade war, but the longer-term outlook for trade relations remains murky.

The deal between and postponed the most pressing threat to the global and Chinese economies - a sharp hike in U.S. tariffs that had been slated for Jan. 1.

But analysts cautioned it has only bought a bit more time for wrangling over deeply divisive trade and policy differences, and said China's economy will continue to cool regardless under the weight of weakening domestic demand.

Still, the offered some relief for the country's battered stock markets, which had tumbled over 20 percent at one point this year, prompting a flurry of support measures.

At the midday break, China's benchmark Composite index was 2.9 percent higher and blue-chip shares surged 3.1 percent.

Government bond futures fell as shares rallied, with the 10-year treasury futures for March delivery, the most-traded contract, falling 0.26 percent at the open. It was last down 0.07 percent at 96.630.

Shares in Hong Kong also jumped, with the adding 2.7 percent at midday, and breaking through the 27,000 level for the first time since Oct. 4. The Enterprises Index is 2.8 percent higher at midday.

"This is a relief rally. The markets are oversold. I don't think we needed much of an excuse (for a rebound)," said Paul Kitney, at in Hong Kong.

The agreement "is not a ceasefire, it's just a de-escalation. The existing tariffs are still having a negative impact on the Chinese economy, they haven't gone away."

The said had agreed to buy an unspecified but "very substantial" amount of agricultural, energy, It said the two sides would launch new talks to address issues including technology transfer, intellectual property and non-tariff barriers.

But the also said the existing 10 percent tariffs on $200 billion worth of Chinese goods would be lifted to 25 percent if no deal was reached within 90 days.

praised the "important consensus" reached in the deal, but did not mention the 90-day deadline.

Despite the differences in the wording and uncertainty about some details, the agreement was a better outcome than investors had expected, said Zhang Gang, an at Central Securities in

At the same time, the outcome of the meeting is "unlikely to immediately spark a turnaround in market sentiment," he said.

"While this means the effect of the trade war may pause for a moment, we're still facing domestic issues including slowing growth, and awaiting more information about the direction of macroeconomic policy and eagerly expected measures like tax cuts."

In onshore trade, the yuan was trading at 6.9174 per dollar at midday, after opening at 6.9278. It has lost more than 6 percent of its value so far this year as trade ties deteriorated and the U.S. dollar firmed.

The offshore yuan firmed to as high as 6.8950, and was trading at 6.9110 at midday.

"The impact on the yuan was very positive, and has prompted many market participants building up long positions in the Chinese unit," said a at a in "Such positive sentiment won't fade very soon ... (the 90-day) period is not short, it's long enough to soothe market sentiment."

Ken Cheung, at in Hong Kong, was less optimistic.

"The gap between China and the U.S. ... remains quite wide, and it is very difficult for them to reach a comprehensive deal in 90 days," Cheung said, adding that he doesn't see "much further movement" for the rebound.

Commodities also rallied on hopes of thawing relations. Prices of Chinese and steelmaking ingredients soared more than 6 percent.

"We are expecting China to buy more LNG, LPG, corn and soybean to step up imports from U.S," said Michael Mao, with consultancy "(The) government is also likely to issue a new import tax on these products to facilitate imports."

But some analysts cautioned about reading too much into Monday's rally.

"The fundamentals haven't changed," said Ben Kwong, at in Hong Kong, referring to the day's gains.

"Worries about the trade war have subsided, so investors are shifting their focus back to other things, like a stronger renminbi (or) a lower pace of rate hikes from the Fed."

China's factory activity grew slightly in November, a private survey showed on Monday, but new export orders shrank at a faster pace and manufacturers reported they were cutting prices amid soft domestic demand.

The downbeat readings backed Friday's official PMI survey for November which showed growth in the nation's vast factory sector had effectively stalled.

(Reporting by and in SHANGHAI and in HONG KONG; Additional reporting by and in BEIJING; Editing by and Kim Coghill)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Mon, December 03 2018. 13:32 IST
RECOMMENDED FOR YOU