Most stocks rebounding as China stabilizes yuan

BEIJING — China stabilized its currency Tuesday, suggesting it might hold off from aggressively letting the yuan weaken as a way to respond to U.S. President Donald Trump’s tariffs, in a trade war that is wounding the world economy.

The yuan declined to 7.0562 to the dollar before strengthening back to 7.0297 in the afternoon. That came a day after Beijing sent financial markets tumbling by allowing the currency to fall to an 11-year low. A weaker yuan can help neutralize U.S. tariffs on Chinese goods by making them more price-competitive on international markets.

The Trump administration responded Monday by officially declaring that China improperly manipulates the yuan’s value. That opens the way to possible new penalties on top of tariff hikes already imposed on Chinese goods in a fight over Beijing’s trade surplus and technology policies.

Investors shaken

The sight of the world’s two economies engaging in a tit-for-tat economic dispute has shaken investors. So the fact that China let its currency stabilize on Tuesday offered some hope that the sides might try to keep the situation from escalating further. Stock markets turned higher.

The Chinese central bank governor, Yi Gang, tried to reassure markets, promising in a statement late Monday “not to use exchange rates for competitive purposes.”

The central bank is “committed to maintaining the basic stability” of the yuan “at a reasonable and balanced level,” Yi said.

But relations remain tense between the U.S. and China, which have engaged intermittently in talks to address Trump’s complaints that China does not trade fairly.

Trump rattled investors with last week’s surprise announcement of punitive tariffs on an additional $300 billion of Chinese imports, effective Sept. 1. That came after a round of talks on resolving their tariff war ended in Shanghai with no indication of a deal.

US blasted by paper

The ruling Communist Party’s main newspaper accused Washington of “deliberately destroying the rules-based international order” and jeopardizing economic cooperation. It accused the Trump administration of using American families as hostages in trade talks, since tariffs on imports tend to increase a country’s consumer prices at home.

“One cannot understand how such a big, internationally influential country could be so irresponsible,” the People’s Daily said.

The Chinese central bank denied improperly manipulating the exchange rate. It said the yuan’s decline was driven by market forces.

“The latest U.S. move will likely harden China’s position in trade negotiations,” Tao Wang, an analyst at UBS bank, said in a report.

American officials complain that a weak yuan — also known as the renminbi, or “people’s money” — makes China’s export prices unfairly low, hurting foreign competitors and swelling Beijing’s trade surplus.

Washington’s latest moves may be “evidence that the U.S. administration may not really want to reach a trade deal soon,” said Wang. “We believe there is an increasing risk to a delay or cancellation of the planned trade talks.”

Markets mixed

Asian stock markets fell for a second day. China’s main index lost 1.6% and Australia’s was down 2.4%. But markets edged back up in Europe, where Germany’s DAX was up 0.3%, while U.S. futures were almost 1% higher.

The People’s Bank of China sets the exchange rate each morning and allows the yuan to fluctuate by 2% against the dollar during the day. The central bank can buy or sell currency — or order commercial banks to do so — to dampen price movements.

On Tuesday, the yuan’s starting exchange rate was set at 6.9683. That would allow the currency to weaken to as much as 7.100 while staying within the 2% trading band.

Chinese regulators are trying to make the state-controlled exchange rate more responsive to market forces, which are pushing the yuan lower.

Trump’s tariff hikes have put downward pressure on the yuan by fueling fears that economic growth might weaken.

The yuan has lost 5% against the dollar since hitting a high in February of 6.6862 to the dollar.

That helps exporters cope with tariffs of up to 25% imposed by Trump on billions of dollars of Chinese goods. But it raises the risk of inflaming American complaints.

A weaker yuan also might disrupt Chinese efforts to shore up cooling economic growth. It would raise borrowing costs by encouraging an outflow of capital from the world’s second-largest economy.

LONDON — Stock markets turned higher on Tuesday as China stabilized its currency after allowing it to depreciate against the dollar in response to President Donald Trump’s decision to put more tariffs on Chinese goods.

The more buoyant tone follows a big sell-off Monday, when stocks were hammered after the Chinese government allowed its currency to depreciate against the dollar and was accused by the U.S. Treasury Department of being a currency manipulator. By lowering the value of the yuan, China can effectively offset the tariffs that Trump has imposed.

The fall in the yuan below the politically sensitive level of 7 to the dollar followed Trump’s threat of tariff hikes on an additional $300 billion of Chinese imports and led to Monday’s rout. Many stock indexes around the world recorded their worst day so far this year as fears mounted of an escalating trade war. In the U.S., the Dow Jones industrial average slumped 3%.

Yuan fixed higher

On Tuesday, the People’s Bank of China fixed the yuan at a higher rate than anticipated, a move that helped Asian shares pull off lows and encouraged investors in Europe and the U.S.

“In pulling the yuan higher, it is not only looking to manage any decline, but also looking to contain any damage in terms of confidence in their stewardship of the Chinese currency and economy,” said Michael Hewson, chief market analyst at CMC Markets.

“It also buys time for cooler heads to prevail when it comes to escalating events further.”

In Europe, Germany’s DAX rose 0.7% percent to 11,745 while France’s CAC 40 was up 1% at 5,295. The FTSE 100 index of leading British shares lagged its counterparts amid ongoing Brexit concerns and was trading 0.2% higher at 7,239.

Wall Street was set to open higher at the opening bell, with Dow futures and the broader S&P 500 futures up 1%.

Earlier in Asia, the Shanghai Composite Index declined 1.6% to 2,777.56 and Tokyo’s Nikkei 225 gave up 0.6% to 20,585.31. Hong Kong’s Hang Seng shed 0.7% to 25,976.24 and Seoul’s Kospi was off 1.5% at 1,917.50.

Trade war jitters

The fallout of the latest trade war jitters weren’t just felt in stocks. Gold, for example, hit a six-year high on Monday as investors sought it out as a supposed safe haven of value. On Tuesday, it was down only 0.1% to trade at $1,475 per ounce, a sign that investors remain risk-averse.

Other safe haven assets that saw big gains on Monday include U.S. Treasury bonds and the Japanese yen.

Trump’s trade policies and how he responds to China’s decision to not let the yuan fall further are likely to remain the key driver in markets in the days to come. Meanwhile, given the darkening economic picture, the Federal Reserve is increasingly expected to indicate that it is ready to cut interest rates again. Last week’s rate cut, the first in over a decade, actually saw stocks slide as Fed Chairman Jerome Powell indicated that there may not be as many more to come in coming months as many investors think.

“This trade spat is going away no time soon, but we should see central bank easing bets rise globally and that will help limit some of the market carnage over the next couple weeks,” said Edward Moya, senior market analyst at OANDA.

In energy markets, which often reflect expectations of global economic growth, the benchmark U.S. crude rose 55 cents on Tuesday to $55.248 per barrel in electronic trading on the New York Mercantile Exchange while Brent crude, used to price international oils, gained 35 cents to $60.17 per barrel in London.

China halts US farm purchases

China halted purchases of U.S. farm goods, fueling fears about global damage from its trade war with Trump.

As they have learned in the last two years, our great American Farmers know that China will not be able to hurt them in that their President has stood with them and done what no other president would do - And I’ll do it again next year if necessary!

— Donald J. Trump (@realDonaldTrump) August 6, 2019

On Monday, the U.S. Treasury Department officially labeled Beijing a currency manipulator, a status that opens the way to possible additional sanctions.

The U.S. move “will likely contribute to a hardening of positions” in trade talks, Martin Petch of Moody’s Investors Service said in a report.

“Unless negotiations between the U.S. and China resume rapidly, this latest development is likely to create negative spillover effects in both China, the U.S. and globally, and particularly in Asia,” he said.