The move signals U.S. resolve and intent that it means business. Systemic concerns it has put across to China have to be addressed and resolved. Dilly dallying delaying tactics will not be entertained.
In a development that underscores the United States’ resolve not not backdown on rampant Chinese exploitation of its intellectual property and manipulation of trade practices, U.S. President Donald Trump ramped up pressure saying he will further hike U.S. tariffs on Chinese goods this week.
With the news reaching the market, financial markets around the fall tread downwards.
Chinese U.S. stock markets fell by just 2%, Chinese shares plunged by more than 4% at one point; oil prices also fell while the Chinese renminbi tumbled.
Trump has said, he would target a further $325 billion of Chinese goods with 25% tariffs “shortly”.
Caught by surprise, China reacted to the development by saying it was considering cancelling trade talks scheduled for this week, reported the Wall Street Journal.
“I think this has got the potential to be a real game-changer,” said Nick Twidale, a Sydney-based analyst at Rakuten Securities Australia. “There is still a question of whether this is one of the famous Trump negotiation tactic, or are we really going to see some drastic increase in tariffs. If it’s the latter we’ll see massive downside pressure across all markets”.
MSCI’s broadest index of Asia-Pacific shares outside Japan was down by 1.6% after China’s markets reopened from a three-day national holiday. Chinese blue-chips stocks fell by 4.2% in early trade. The price drops despite a move on Monday by China’s central bank to cut capital reserve requirements for small banks as it tries to boost lending to small and private firms.
Treasury futures jumped 21 ticks. Data from CME Group showed the market sees a nearly 58% chance of a Federal Reserve rate cut by the end of 2019.
Chinese 10-year treasury futures also jumped, with the most-traded contract, for June delivery rising 0.5% to 97.010.
“The intensified trade and geopolitical risks are likely to prompt the regional central banks for more stimulatory policies,” wrote an analysts at ING. “We expect the majority of Asian central banks meeting this week to cut their policy rates.”
The Chinese renminbi sank, with the offshore unit weakening to 6.8215 per dollar, to its lowest level since January 2010, before paring some of its losses. The onshore yuan weakened to 6.7980 per dollar before bouncing back to 6.7923.