ChiXi Consultants - China Moves to Boost Liquidity amid US Trade War

China pumps USD 109 billion into economy as trade war bites on growth

Image Courtesy Reuters

Friday's US non-farm payrolls showed job creation slowed in September, likely from Hurricane Florence's impact on restaurant and retail payrolls, but the Labor Department report also showed a rise in wages that could keep the Federal Reserve on track for more interest rate hikes. 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.

It is the fourth time the country's central bank has cut its reserve requirement this year.

With the increase in U.S. tariffs likely to start "being a drag" on Chinese exports, Fenner said Beijing wants to "shore up and provide some support for domestic demand".

The RRR cut would not create depreciation pressure on the yuan, the PBOC said, adding it would keep the foreign exchange markets stable.

Economists predicted more RRR cuts ahead, though China has repeatedly said it will not resort to massive stimulus, concerned about introducing excessive leverage into the financial system.

US President Donald Trump kicked off the trade war in June by slapping additional tariffs on billions of dollars Chinese exports, piling up pressure on China to reduce over USD 335 billion trade deficit in the USD 710.4 billion bilateral trade.

A man is seen behind an electronic board displaying the Nikkei average and Japanese yen rate againt the US dollar at the Tokyo Stock Exchange in Tokyo, Japan, October 11, 2018.

The "very timely" RRR cut is big enough to help boost confidence in the economy, said Xu Hongcai, deputy chief economist at the China Centre for International Economic Exchanges, a Beijing think tank.

Mr. Pence's speech marked a sharpened USA approach toward China, going beyond the bitter trade war between the world's two biggest economies, which has magnified concerns about the outlook for China's economy.

"We expect the dollar rally to lose steam".

Oil prices skidded in line with U.S. equity markets, even though energy traders anxious about shrinking Iranian supply from U.S. sanctions and kept an eye on Hurricane Michael, which closed some U.S. Gulf of Mexico oil output. The week-long National Day holiday begins on October 1. Before trading began on Monday, the PBOC set the midpoint of the yuan's daily trading band at 6.8957 per dollar, its weakest level since May 11, 2017. One-year NDFs are settled against the midpoint, not the spot rate. Co, Kweichow Moutai Co and Hangzhou Hikvision Digital Technology Co - old favourites that jumped at least 97 per cent past year - were the most sold by overseas traders on Monday.

However, the bank's move could not prevent stocks from falling further. The report, which followed a slew of strong indicators on the world's top economy, saw yields on benchmark 10-year Treasuries rise for the third straight day, hitting a fresh seven-year high with the Fed expected to stick to its rate hike drive.

In currency markets, the dollar was 0.07 percent stronger against the yen at 113.78, while the euro was 0.05 stronger against the dollar at $1.1528.

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