China Foreign-Currency Reserves Drop on Trade Tensions, Yuan

China Foreign-Currency Reserves Drop on Trade Tensions, Yuan

China Foreign-Currency Reserves Drop on Trade Tensions, Yuan

Having weakened over 6 percent so far this year, the yuan hit a 7-week low on Monday after the People's Bank of China (PBOC) loosened policy by cutting the ratio of cash that banks must hold as reserves.

The cut will "fill in the liquidity gap of banks" without easing monetary policy and putting downward pressure on China's currency, the yuan, the bank said.

The fall in Chinese equities comes just a few days after the USA bank JPMorgan cut its outlook from overweight to neutral on the country's stock market as a result of the likely negative impact of the trade war on the country's growth.

Asian shares were also hit on Monday as investors in Chinese stocks reacted for the first time to new pressure from Washington and a report that Chinese spies had compromised US hardware.

"In our view, the performance of external markets may hamper the near-term sentiment uplift of the RRR cut, so the effect may not be obvious", Gao Ting, Head of China Strategy at UBS Securities, said in a note.

China's yuan eased against the U.S. dollar in thin trade on Wednesday, reflecting a weaker official midpoint, as the market waited to see what the U.S. Federal Reserve does at a policy meeting and how its Chinese counterpart reacts. -China trade war on China's growth, while the dollar gained against the euro as Italian bond yields spiked on a brewing spat over Italy's budget plans.

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It comes as the United States and China have imposed tariffs on one another's goods in a row that is hitting companies and risks hurting the global economy. "There is room for further reductions and I expect another one percentage point cut by the year-end". According to the official press release, the cut will release a total of CNY1.2 trillion into the banking system.

Chinese Minister Liu Kun stated, "Some regions and companies have been hit (by trade frictions), but China has the ability to minimize the impact". The government has taken measures to help companies impacted by the trade war, he added.

European markets slid, with defensive stocks under pressure as investor confidence took a hit from last week's spike in Treasury yields and heightened expectations for further US interest rate hikes by the Federal Reserve.

On Monday the State Council, China's cabinet, said it will increase export tax rebates from November 1 and will speed up export tax rebate payments in a new bid to boost the real economy and support trade growth.

To assess China's economic situation, one must take a longer view and a more holistic approach, Ning Jizhe, vice chairman of China's state planner, told the People's Daily in an interview, stressing that growth, employment, prices and worldwide balance of payments have been stable. However, some key activities have abated more steeply.

Fixed-asset investment is growing at the slowest pace on record, while non-performing loans surged in the second quarter and defaults climbed. July saw a rise in nationwide jobless rate to 5.1%. "The external environment is becoming tougher and we can not rule out further RRR cuts".

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