Chinese stocks shrug, yuan and bonds decline after US trade tariffs kick in

Shanghai — Chinese stocks jumped in afternoon trade on Friday, reversing earlier losses, but the yuan remained weaker against the dollar as US tariffs on Chinese goods kicked in, escalating the trade row between the world’s two largest economies.

The US imposed tariffs on $34bn of Chinese imports at 4.01am GMT. Beijing has promised to retaliate in kind.

At 5.17am GMT, the benchmark CSI300 index was up 0.9%, after ending the morning session down 0.1% and earlier falling as much as 1.4%.

The Shanghai composite index was 0.6% higher after falling 0.3% by the midday break. It had flirted with two-year lows in the morning session.

As stocks turned around, Chinese treasury futures fell. Chinese 10-year treasury futures for September delivery, the most-traded contract, fell 0.2% to 95.640.

China’s yuan was 0.3% weaker against the dollar at 6.6550.

“The chances are slim for China and the US to reach an agreement on trade issues, and trade war worries will be a long-term uncertainty for at least the next two years,” said Yan Weixiao, an analyst at Founder Securities.

He said things could be “dangerous” for Chinese stocks and predicted the psychologically key level of 2,638 points for the SSEC, which was hit in March 2016, would probably be broken.

At 4.13am GMT, the yuan was at 6.6570 to the dollar and trading in a tight range after ending the late session on Thursday at 6.6371.

“There shouldn’t be huge volatility in the market because it’s all expected. Investors know what’s going to happen and it has already been priced in,” said Li Liuyang, senior foreign exchange analyst at China Merchants Bank in Shanghai, referring to the yuan market.

“The market will pay attention to any follow-up, whether Trump escalates further, or anything unexpected happens.”

Gao Qi, forex strategist at Scotiabank, said in a note on Friday he expected the Chinese authorities to step in to calm the market and prevent the yuan from sharply depreciating if need be.

“We see a strong resistance of 6.70 for now and the 6.90 level seems China’s bottom line for the yuan exchange rate.

“The yuan will certainly face intensifying depreciation pressure again going forward if China fails to de-escalate trade tensions with the US,” he wrote.

The US has warned it may ultimately target more than $500bn worth of goods, or roughly the total amount it imported from China last year.

Beijing has vowed to respond immediately with an equal amount of tariffs of its own against US cars, agricultural and other products, though it is unclear how swiftly the actions could escalate into an all-out trade war.

Reuters