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China shares slump, yuan down as U.S. raises stakes in trade row

Reuters  |  SHANGHAI 

By and Winni Zhou

SHANGHAI (Reuters) - China's shares tumbled in a broad sell-off, and the yuan weakened on Wednesday after the threatened further import duties on Chinese goods in a sharp escalation of the trade conflict between the world's two biggest economies.

Washington's latest move, which comes just days after both countries imposed tit-for-tat tariffs on $34 billion of each other's goods, ups the ante in a heated trade dispute that has rattled global financial markets.

The Shanghai Composite index was 1.9 percent lower at the midday break, while the blue-chip CSI300 index also slumped 1.9 percent.

Investors are particularly worried the trade row could harm an already slowing Chinese in a blow to global investment and growth.

The yuan's decline also prompted heavy selling of amid fears that a falling currency could add to fuel costs and the debt-servicing load of companies with dollar-denominated debts.

Southern Airlines, Air and Eastern Airlines all fell more than 5 percent. The broader CSI300 transport sub-index was down 2.9 percent.

Hong Kong's Hang Seng index was 1.6 percent lower at 0330 GMT.

Investors were wary of China response to the latest U.S. threat, as the country's said the proposed U.S. duties harm the Trade Organization system and globalisation.

"It is impractical for China to match tariffs by quantity," said Frances Cheung, of macro strategy at in "If the U.S. goes ahead with more, China needs a combination of tools and it is prudent to guard against downside risk to growth too."

She said the downside risk to growth mainly stemmed from trade tensions.

RISK TO EXPORTS

The threat of additional tariffs on $200 billion worth of goods "would mean that around half of Chinese exports of goods to the U.S. would face significant U.S. punitive measures," Rajiv Biswas, Pacific Chief Economist at IHS Markit, said in a note.

"China's export sector will therefore suffer a significant deterioration in export competitiveness to the U.S. compared to other emerging markets' "

The trade war anxiety extended to China's onshore yuan, which followed its offshore counterpart lower. Traders said they were keeping an eye on the key 6.7 per dollar level as pressure mounted on the currency.

However, the market wasn't aggressively testing that level due to concerns it could prompt intervention, they said.

The onshore yuan opened at 6.6694 per dollar and was changing hands at 6.6636 as of 0331 GMT.

The offshore yuan was at 6.6752 per dollar after hitting a low of 6.6918, down nearly 0.5 percent on the day, at one point in early Asian trade.

"Investors confidence was rocked after the U.S. administrations latest trade salvo which reminded us that not all is quiet on the western trade war front after the released a list of 10 percent tariffs on $200 billion in Chinese goods," Stephen Innes, of trading for Pacific at wrote in a note.

"But nonetheless, this is a very sobering reality check as to just how fragile sentiment around trade war rhetoric is and should keep markets trading defensively during Asia."

Chinese 10-year treasury futures for September delivery, the most-traded contract, were 0.12 percent higher at 95.620.

(Reporting by and Winni Zhou; Editing by & Shri Navaratnam)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, July 11 2018. 09:16 IST
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