US tariffs ready to be announced, Chinese equities slide

Summary:

• Donald Trump is expected to slap China with duties on $200 billion goods

• China says it will not negotiate “with a gun pointed to its head”

• Equities’ valuation in China shrinks

A trade war between the United States and China seems to be unlikely to be terminated any time soon as the former keeps pushing its opponent to the wall putting forward a new round of talks and the same time. As per a WSJ article released over the weekend the Donald Trump administration plans to announce within days new tariffs on as much as $200 billion in Chinese goods. Earlier there was guesswork that a new tariff rate might be as high as 25% but right now we are talking about a 10% rate. Note that the lowered level is to be aimed at appeasing businesses which complained about a duties’ impact on their activity (increased imports’ costs). Let us also remind that both the US and China were expected to begin another round of trade negotiations around 20 September but should the former decide to implement new levies China could reject the US proposal to resume talks, according to another WSJ article published on Sunday. The report cited one senior Chinese official saying the country would not negotiate “with a gun pointed to its head”. It does not sound reassuringly at all, and if Trump really puts fresh tariffs in order to improve its negotiating position he could actually reach an opposite direction discouraging China to participate in talks altogether.

Stock markets in China opened lower in response to such revelations. In the morning the Hang Seng (CHNComp) is trading 1.5% down while the Shanghai Composite is falling 1.2% - both outcomes as of 6:40 am BST. Writing about the China’s stock market one needs to mention that the PBoC chose to inject liquidity via 1-year medium-term lending facility which resulted in new 265 billion CNY being added at a rate of 3.3%. Even as in theory new funds should be equities positive, they failed to bring relief to them this time around as threats related to further escalation of the trade spat prevailed. Looking at the chart below it does not look well for Chinese stocks and they could resume falling after a bounce witnessed at the end of the past week. In this place it is worth noting that Donald Trump tends to compare stock markets in the US and China justifying that tariffs work well as equities’ valuation in the US keeps growing while shares in China keep falling. But it is nothing surprising hearing Trump talking in this way as he quite often takes credit for any gains registered on Wall Street and for every macroeconomic figure released above expectations.

After seeing a dead cat bounce at the end of the past week Chinese stocks seem to be getting back to falls, and a further deterioration of moods surrounding trade talks is not helpful at all. Thus, one may suppose that the Hang Seng could take a dive below its last week’s low if the climate concerning levies does not improve. Let us also note that Chinese stocks are declining not only due to risks related to the trade war but companies’ earnings in the second quarter were not particularly strong as well justifying in part the severe slump we are looking at. Source: xStation5

In the other news:

• No NAFTA talks between the US and Canada will be held on Monday in Washington as Canada’s foreign minister will note be there today

• New Zealand’s services PMI slid to 53.2 from 54.8 in August

• The British Chambers of Commerce cuts its GDP forecast for the UK economy to 1.1% from 1.3% this year and to 1.3% from 1.4% in 2019

• Russia and Saudi Arabia pledge to continue working toward long-term cooperation among OPEC and non-OPEC members

• US dollar stays marginally offered in the morning despite risks related to a further escalation of the trade war

• EM currencies stay calm with the Turkish lira being the largest market mover and declining 0.4%