China promises not to weaken yuan, criticizes USA concern:The Asahi Shimbun

Andrew Cummings
October 10, 2018

China's central bank announced Sunday it would reduce the reserve requirement ratio (RRR) for most banks by one percentage point, the fourth time this year the country has sought to free up credit for businesses as they face down $250 billion in U.S. tariffs. The tech-heavy ChiNext board fell 2.9 percent.

The selling trumped news that the People's Bank of China had lowered the required reserve ratio (RRR) as it looks to shore up the economy after a series of weak data, while it also battles a long-running trade row with the United States.

On Monday, the yuan sank to a 22-month low of 6.93 to the dollar, making one yuan worth about 14.4 cents. Stocks in Shanghai and Shenzhen were down nearly 3 percent on Monday morning, while Hong Kong was down close to 1 percent.

Beijing has stepped up liquidity support across the financial system in 2018 as policymakers have focused on calming fears of capital outflows and sought to soothe battered markets even as anxiety grows that a heated trade war with the U.S. could deal a damaging blow to the broader economy.

Still, some analysts said the "national team", a term used by Chinese investors to refer to state-supported funds created during the 2015 market crash, may be behind the stock's rise, buying it up to prevent the benchmark gauge from sinking further.

A US official told reporters in Washington the Trump administration is concerned about the weakening yuan.

Analysts say the yuan's decline has been driven mostly by China's slowing economic growth and the divergence between USA and Chinese interest rates.

The PBOC would "maintain reasonably ample liquidity to drive the reasonable growth of monetary credit and social financing scale", it said. Prior to Wednesday's market opening, the PBOC set the yuan's midpoint rate at 6.8571 per dollar, the weakest level since August 24, and 131 pips or 0.19 percent weaker than the previous fix of 6.8440. Earlier 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. There is room for further reductions and I expect another 1 percentage point cut by the year-end,"Mr. Xu added".

Yields on the 10-year U.S. Treasury note were at seven-year highs after a solid report last week raised the likelihood of faster interest rate hikes. That compares with the 3.227 percent yield for US bonds.

Asian markets fell on Monday, extending last week's sell-off as another strong United States jobs reading further fanned expectations the Federal Reserve will hike interest rates at a quicker pace.

Investors are also keeping an eye on Brazil after right-wing Congressman Jair Bolsonaro won almost half the votes in Brazil's first-round presidential election on Sunday, marking a major shift to the right in Latin America's largest nation fuelled by voters' anger at corruption. Sydney retreated 1.4 percent, Singapore eased 0.5 percent, and Taipei and Seoul were each 0.6 percent lower.

Oil prices fell more than 1 percent after the US said it may grant waivers to sanctions against Iran's oil exports next month, and as Saudi Arabia was said to be replacing any potential shortfall from Iran.

Spot gold was 0.1 percent higher, trading at $1,203.80 per ounce.

US crude dipped 0.48 percent at $73.98 a barrel.

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