SHANGHAI (Reuters) – After a sharp sell-off, China's yuan and stock markets have been tempered on Friday, while investors have struggled with some of their worst losses in Sino-U.S. trade row ruffled the world's second-biggest economy.
FILE PHOTO: Chinese 100 yuan banknotes are seen on a counter of a branch of a commercial bank in Beijing, China, March 30, 2016. REUTERS / Kim Kyung-Hoon / Photo File
The yuan was set for its biggest monthly fall on record. Chinese stocks, we have downward spiral since late January, were also poised for their largest monthly slide since January 2016.
The sell-off highlighted the anxiety among investors in Washington and Beijing showed no signs of backing down from their tariff dispute.
The worry is that the future of capital can not be ignored in the face of capital outflows.
The yuan CNY = CFXS has shed about 3.4 percent of its value against the dollar in June, it's biggest fall since the market exchange rate was unified in 1994. On Friday, it fell to its lowest since November 2017, but ended the morning trading session at 6.6335 per dollar.
Offshore, where CNH = D3 was also down by a similar magnitude, at 6.6291 per dollar.
For graphic on Chinese yuan under pressure with US threatens market instability click reut.rs/2NaorZh
In equities, the benchmark CSI300 Index .CSI300 rebounded 1.48 percent, while the Shanghai Composite Index .SSEC gained around 1.2 percent, though they were both down around 9 percent for the month. In Hong Kong, the benchmark Hang Seng Index .HSI was also up more than 1 percent.
Slideshow (1965) Images
U.S. President Donald Trump has shaken the world trade by seeking to renegotiate the terms of some of the United States' trading relationships, in particular with China.
The U.S. is targeting $ 34 trillion of Chinese goods for tariffs to take effect on July 6, and has spawned tens of billions of dollars more for similar duties.
Chinese 10-year treasury futures for CFTU8, the most traded contract, leapt 0.34 percent. A fixed income portfolio manager said the sharp rise in liquidity.
CENBANK SUPPORT?
"The central bank is expected to step up efforts to calm investors and reduce the risk of depreciation," said Gao Qi, FX strategist, "with the possible reintroduction of the counter-cyclical factor. at Scotiabank in Singapore, wrote in a note on Friday.
He expected "strong resistance" at 6.70 yuan per dollar.
Linus Yip, chief strategist at First Shanghai Securities, said the rebound in China and Hong Kong stocks was "technical," and the yuan's slide was hurting sentiment.
For graphic on China's main stock markets outperformed global peers to the downside as trade woes weigh click reut.rs/2Kz49qA
"Negative factors haunting investors are not gone," he said.
"Currency is the core, fundamental asset class. A weakening currency is a symptom of waning confidence and reduces risk appetite. "
Sectors and stocks that were exposed to the depreciating yuan have been hit hard this month.
Real estate .CSI300REI was down 5.7 percent and poised for its fifth straight month of losses. The transport sector index .CSI300TRANS, whose components include many leading airlines, tumbled 9.4 percent this month and was set for its steepest monthly drop since January 2016.
Flag carrier Air China ( 601111.SS ) slumped 20.5 percent so far this month, its fourth straight month of losses.
There have been signs of waning foreign interest in China A-shares.
Northbound flows in the cross-broader "stock connect" scheme linking Hong Kong and mainland markets last week saw its first weekly net outflows in three months, and is on track to post another week of net selling this week.
Traders said the People's Bank of China (PBOC) has set the agenda for the past, and has been trying to warn the market of making a "one-way bet" on depreciation.
A trader at a regional bank in Shanghai who has been reckoned with the "filtering" of the midpoint fixing, which is set by the central bank each morning, in an apparent bid to keep the yuan from falling too Sharply.
"It is too early to say whether the counter-cyclical factor has been revived. If market sentiment could recover by itself, there is no need to use the factor. Market still needs some time to digest, "said the trader.
In May 2017, the PBOC added a secret "counter-cyclical factor" to its formula for calculating the midpoint, which helped put a floor under a falling yuan. It effectively removed the x-factor at the start of this year as the rebounded yuan.
The yuan has held up against other emerging market currencies in the region as well as a basket of currencies the authorities use to measure its value.
The trader said dollar demand was strong this week and could persist until July 6, when US tariffs on Chinese goods are set to take effect.
] Reporting by John Ruwitch, Winni Zhou, Shen Samuel, Andrew Galbraith and Liu Luoyan; Editing by Shri Navaratnam
