China Announces It Seeks ‘Calm’ End To Trade War, as Markets Tank and Currency Hits 11-Year Flatline

In France we are all laughing at how knowingly inaccurate the U.S. reporting of events and conversations at the G-7 is. These Leaders, and many others, are getting a major case study of Fake News at it’s finest! They’ve got it all wrong, from Iran, to China Tariffs, to Boris!

— Donald J. Trump (@realDonaldTrump) August 25, 2019

The yuan also slipped to 7.1487 to the dollar, weeks after the Treasury Department formally designated China a currency manipulator. The Treasury Department said it will work with the International Monetary Fund to try to rectify the “unfair competitive advantage created by China’s latest actions.”

“The gloves are coming off on both sides and as such yuan depreciation is an obvious cushion against US tariffs,” Mitul Kotecha, an economist at Toronto-Dominion Bank, told Bloomberg News.

There are several reasons why China’s central bank would want to allow the yuan to drop, including to help struggling local exporters who want their products to be less expensive for international purchasers. People’s Bank of China Governor Yi Gang, however, has insisted China does not “engage in competitive devaluation.”

On Sunday, Treasury Secretary Steven Mnuchin told reporters that if “China would agree to a fair and balanced relationship, we would sign that deal in a second.”

Stephen Innes, managing partner at Valour Markets in Singapore, compared the difficulty of assessing the volatile market situation to reading tea leaves.

“Nobody understands where the president is coming from,” he said, adding that the best thing Trump can do for market stability is to “keep quiet.”

“The problem that we’re faced right now is that we are making a lot of assumptions ahead of the economic realities.”

The market is now dominated by fears of a portending U.S. recession, although the American economy is actually holding up, and much of the U.S. economy is made up of consumption, Innes said. If interest rates come down, he added, consumer spending is likely to go up, working as a buffer for the economy.

“What the market’s really waiting for is for them to drop interest rates,” Innes said. “Right now, we are still sitting on that uncertainty.”

Meanwhile, Sen. Lindsey Graham, R-S.C., said on Sunday that Democrats should not criticize Trump for taking on China over trade as they have complained for years about Beijing’s policies but done nothing. Senate Minority Leader Chuck Schumer, D-N.Y,  for example, has urged Trump to fight China aggressively.

“Every Democrat and every Republican of note has said China cheats,” Graham said on CBS News’ “Face the Nation.” “The Democrats for years have been claiming that China should be stood up to, now Trump is and we’ve just got to accept the pain that comes with standing up to China.”

U.S. markets have also taken something of a beating. The Dow Jones Industrial Average plunged more than 600 points Friday after the latest escalation in the trade war between the U.S. and China rattled investors. The broad sell-off sent the S&P 500 to its fourth straight weekly loss.

The tumbling began after Trump responded angrily on Twitter following China’s announcement of new tariffs on $75 billion in U.S. goods. In one of his tweets he “hereby ordered” U.S. companies with operations in China to consider moving them to other countries — including the U.S.

Trump also said he’d respond directly to the tariffs — and after the market closed he delivered, announcing that the U.S. would increase existing tariffs on $250 billion in Chinese goods to 30 percent from 25 percent, and that new tariffs on another $300 billion of imports would be 15 percent instead of 10 percent.

“Starting on October 1st, the 250 BILLION DOLLARS of goods and products from China, currently being taxed at 25 percent, will be taxed at 30 percent,” Trump wrote on Twitter. “Additionally, the remaining 300 BILLION DOLLARS of goods and products from China, that was being taxed from September 1st at 10 percent, will now be taxed at 15 percent. Thank you for your attention to this matter!”.

Zhu Huani of Mizuho Bank in Singapore said what he called Trump’s “tariff tantrum” was setting off “the sense that tariffs could continue to rise,” with the “the unpredictability of timing and extent of these trade actions risk accentuating the paralysis of business decisions and big-ticket business spending.”

“No matter which way you cut the cake, it is nearly impossible to construct a bullish, or even neutral scenario for equity markets today,” said Jeffrey Halley, senior market analyst at Oanda.

Trump also said Friday morning that he was “ordering” UPS, Federal Express and Amazon to block any deliveries from China of the powerful opioid drug fentanyl. The stocks of all three companies fell as traders tried to assess the possible implications.

The president has also raged against Federal Reserve chairman Jerome Powell for his continued refusal to cut interest rates, at one point saying: “My only question is, who is our bigger enemy, Jay Powel (sic) or [China’s] Chairman Xi [Jinping]?”

That outburst came after Powell, speaking to central bankers in Jackson Hole, Wyo., gave vague assurances that the Fed “will act as appropriate” to sustain the nation’s economic expansion. While the phrasing was widely seen as meaning interest rate cuts, he offered no hint of whether or how many reductions might be coming the rest of the year.

Some analysts, however, are confident the Federal Reserve will lower interest rates this year.

A quarter-point rate cut reduction in September is considered all but certain.

Story cited here.