Asian shares fall as China set to reopen after Beijing eases policy

Mae Love
October 10, 2018

The losses in China also came despite a cut in the amount of cash the country's commercial banks must keep in reserve, which its central bank says will pump more than $100 billion into financial markets.

The yuan was also down, as expectations of more easing measures by China, plus surging USA bond yields, exert downward pressure on the Chinese currency. "Also, capital outflows should be increasing due to mounting risks on China-U.S. trade war risks".

"China's foreign-exchange reserves should decline given a stronger dollar and increasing depreciation pressures on the yuan, which could prompt the PBOC to intervene", said Ken Cheung, a senior currency strategist at Mizuho Bank Ltd. The losses in NY seeped into Asia, where Shanghai sank 3.7 percent, while Hong Kong lost 1.4 percent in the afternoon with property firms hit by expectations the city's banks will lift mortgage rates again as they track a likely Fed hike.

Shanghai: China stocks tumbled on Monday, as investors back from a long holiday dumped shares across the board despite Beijing's weekend move to spur more lending at a time of growing fears the economic impact of the Sino-US trade war will deepen. In a speech, USA vice-president Mike Pence said on Thursday that China's onshore stock market fell by 25% in the first nine months of the year because Washington "has been standing strong against Beijing's trade practices".

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China insisted last month, in a 71-page paper, that its economy is "highly resilient" and Beijing is not afraid of a trade war. The benchmark 10-year yield was at 3.3238 percent, while the two-year yield, which rises with traders' expectations of higher Fed fund rates, was last at 2.8891 percent.

The cut will release a total of 1.2 trillion yuan ($175 billion), of which 450 billion yuan is to be used to repay existing medium-term funding facilities which are maturing, the central bank said. At present, the interest rate on China's benchmark bond is about 60 basis points higher than on the USA one.

Chinese Minister Liu Kun stated, "Some regions and companies have been hit (by trade frictions), but China has the ability to minimize the impact". "The narrowing interest rate differentials between China and the USA will exert more downward pressure on the RMB", wrote Nathan Chow, strategist at DBS Group Research. The spot market opened at 6.9000 per dollar and was changing hands around 6.9030 in late afternoon trading, the lowest level since mid-August. It was off 0.55 percent by mid-morning. Reflecting expectations of further yuan weakening, the one-year non-deliverable yuan futures in Hong Kong fell to around 7.015 against the dollar on Monday, the lowest level in 15 months. Markets in Japan are closed for a holiday.

The People's Bank of China (PBOC) has scrambled to boost liquidity and support lending to businesses in response to the downward pressures on economic growth as trade disputes with the United States have worsened.

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