On Friday, China’s yuan and stock markets tried to achieve a modest recovery after a steep sell off, though investors were still struggling with some of their worst losses in years as the turbulent China-US trade dispute threatened to ruffle the second largest economy of the world.
The yuan was seen set for its largest monthly fall on record, with Chinese stocks tumbling down since the latter part of January. The stocks were also on track to their biggest monthly decline since January of 2016.
The steep downturn reflected and emphasized the jitters among investors as Washington and Beijing appeared remotely able to back down from their tense tariff battle with the United States.
Among market participants, there exist concerns that an prolonged selloff in stocks and the yuan could trigger a series of capital outflows, putting further pressure on the economy and convoluting policy making with authorities propping up defenses against the trade battle with the United States.
In June, the yuan had lost over 3 percent of its value against the greenback. That was its largest fall since the market exchange rate was unified since the year 1994. On Friday, it plummeted to its rock bottom since mid-November 2017, though it pulled up to 6.6139 per dollar for a slight recovery of around 0.16 percent on the day.
The yuan trades more freely offshore and the currency was a quarter of a percentage point higher, at 6.6224 per dollar.
For the equities, the benchmark CSI300 Index recovered more than 2 percent. Shanghai Composite Index increased nearly 2 percent. However, both of them were down around 9 percent for the month. Meanwhile, in Hong Kong, the benchmark Hang Seng Index was also higher for more than 1 percent.
Moreover, US President Donald Trump sent shocks to the world by seeking to renegotiate the conditions of some of the United States’ trading relationships, specifically with China.
The US is aiming at $34 billion of Chinese goods for steep tariffs that are set to take effect on July 6 and has threatened tens of billions of dollars more for similar import duties.
China’s 10-year treasury futures for delivery in September increased 0.34 percent. The futures were the most sought-after contract. According to a fixed-income portfolio manager, the steep rise was due to the central bank promising “ample” liquidity.
“The central bank is expected to step up efforts to calm investors and slow the pace of the yuan depreciation that has sparked risk aversion across regional markets, including a possible reintroduction of the counter-cynical factor,” Gao Qi, who is an FX strategist at Singapore-based Scotiabank, said.
He added that he expected “strong resistance” at 6.70 yuan per dollar.
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