#TradeWarEases #ChainaEconomy #USChinaTariff
Greetings, dear readers! While American markets celebrated the tariff truce (American markets: rally on tariffs and hopes for the Fed, but the consumer is in minor), Chinese platforms reacted to the news with much less enthusiasm. Let's take a look at what happened in the Middle Kingdom last week, based on the latest reports.
Stocks are down, anxiety is in the air
So, fact number one: the main Chinese indices – Shanghai Composite and Shenzhen Component – ended Friday down, marking the second consecutive decline. Shanghai lost 0.4%, while Shenzhen lost 0.07%. It would seem that after the news of a breakthrough in trade negotiations and an agreement on temporary tariff reductions, the markets should have breathed a sigh of relief and surged upwards? Not at all.
The main brake, apparently, remains the constant concerns about American tariffs. Yes, the agreement provides for a rollback of most duties and a 90-day truce, during which the US reduces tariffs on Chinese goods from 145% to 30%, and China reduces tariffs on American goods from 125% to 10%. This is undoubtedly a step forward. But analysts immediately switched to "it's not that simple" mode and reminded that the remaining trade barriers still pose serious challenges for key export sectors of China, especially the automotive industry.
Moreover, the US, by announcing a reduction in tariffs, immediately confirmed its intention to reduce dependence on Chinese imports. It's like saying: "We certainly won't quarrel with you for now, but keep in mind that we are still looking for a replacement for you." This approach, to put it mildly, does not contribute to long-term optimism.
The corporate sector has also added negativity. Shares of the giant Alibaba Group fell sharply after the company reported weaker-than-expected quarterly revenue. When even such giants stumble, it does not instill confidence in investors. Among other notable "falling stars" on Friday were East Money, Contemporary Amperex, Avic Chengdu, Guangdong Topstar, and Kweichow Moutai.
Bonds are cautious, the yuan holds steady
There is also no particular positivity in the bond market. The yield on 10-year Chinese government bonds rose slightly to 1.69%. This indicates that investors remain cautious amid uncertainty surrounding US tariff measures. Even a breakthrough in negotiations could not completely dispel this caution.
Meanwhile, the offshore yuan, on the contrary, slightly strengthened against the dollar, rising to 7.21 per dollar. Here, however, the credit is not so much to internal Chinese factors (at least not directly) as to the weakness of the US dollar itself. As we discussed earlier, soft economic data from the US heightened expectations of a Fed rate cut, which puts pressure on the dollar.
However, the rise of the yuan was limited. Chinese state banks actively intervened in the market, selling yuan and buying dollars, to curb excessive strengthening of the national currency and maintain stability. This coincided with an increase in demand for dollars from Chinese corporations and companies listed abroad that need currency for dividend payments.
What's next? Looking at the data and actions of the authorities
Ahead of us is a portion of important Chinese economic statistics, including retail sales, unemployment rate, and data on the loan prime rate. These figures will be critically important for assessing how much the trade issues have already affected the world's second-largest economy.
Traders will closely monitor this data and, of course, any signals from the People's Bank of China (PBOC) regarding monetary policy and actions to stabilize the yuan.
As a result
The situation in Chinese markets shows that even positive news about a trade truce cannot completely outweigh concerns related to long-term trade relations with the US and challenges for key export sectors. The weakness of the dollar helped the yuan, but authorities are actively managing its exchange rate. The upcoming week with important economic data will provide more clarity on the current state of the Chinese economy.
Let's stay in touch and monitor the developments!