China shares weigh on regional markets despite central bank support

Washington and Beijing have imposed punitive tariffs of up to 25 per cent on billions of dollars of each other's goods in an escalating fight over US complaints China steals or pressures companies to hand over technology. The move, the central bank's fourth in 2018, came amid concerns about the economic impact of Beijing's ongoing trade war with Washington.

Shares of the nation's biggest oil producer contributed to the bulk of a rebound in the benchmark Shanghai Composite Index, with a 4.4 per cent jump.

"We believe that the most likely trigger would be a resolution of US-China trade talks, given the unpredictable nature of US President Donald Trump".

"There's an acute shortage of confidence in the market".

The pan-European FTSEurofirst 300 index of leading regional shares closed down 1.14 percent, its biggest one-day drop in a month, while MSCI's gauge of stocks across the globe shed 0.31 percent. China's IT sector fell sharply on Monday, tumbling over 5 per cent as they played catch-up with their Hong Kong peers. On Friday, Chinese technology stocks listed in Hong Kong, including Lenovo and ZTE, slumped on a media report that the systems of multiple U.S. companies had been compromised by malicious computer chips inserted by Chinese spies. Shenzhen-listed shares of ZTE was down over 8 per cent at close. Richard Jerram, chief economist at Bank of Singapore, said while the Fed would not be panicked by the increase in wages "evidence that tight capacity conditions-such as a low unemployment rate-are pushing prices higher will keep them on the current tightening path".

In its Sunday statement, the Chinese central bank said some of the liquidity released by the reserve rate cut will be used to pay back 450 billion yuan ($65.5 billion) of a medium-term lending facility that will mature on October 15. At present, the interest rate on China's benchmark bond is about 60 basis points higher than on the US one.

With the increase in USA tariffs likely to start "being a drag" on Chinese exports, Fenner said Beijing wants to "shore up and provide some support for domestic demand". That compares with the 3.227 per cent yield for United States bonds., the highest level since May, 2011.

Analysts had attributed Monday's losses to Chinese investors playing catch-up after a week-long holiday, during which a sharp sell off in global bond markets had dragged down equity markets. Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.9523, 1.37 percent weaker than the midpoint.

Sixteen strategists see the yuan weakening to 7 to the dollar or higher at some point over the 12-month period, the highest number of respondents in the Reuters poll predicting that since August 2017.

Coming on the final day of the National Day holiday, the South China Morning Post says "the central bank's announcement may also serve as a shot in the arm for the China's stock market when trading resumes on Monday morning".

Vanessa Coleman