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The renminbi weakened and Chinese stocks fell after US President Donald Trump said he could impose a 10 per cent tariff against China from next month.
The CSI 300 index of Shanghai- and Shenzhen-listed companies closed down 0.9 per cent on Wednesday, while Hong Kong’s Hang Seng index retreated 1.6 per cent, led lower by the mainland Chinese companies listed in the territory.
The offshore renminbi, which trades free of the limits imposed by Chinese financial authorities, weakened by 0.3 per cent on Wednesday to 7.29 a dollar before recovering to 7.27.
The dollar strengthened by 0.15 per cent against a basket of currencies including the pound and the yen. The price of gold also rose to an 11-week high of $2,758 per troy ounce.
“The central question about tariffs is does Trump want [higher] tariffs or does he want them as a tool to negotiate?” said Andrew Tilton, chief Asia-Pacific economist at Goldman Sachs, which forecasts that “more tariffs are likely”.
China had largely avoided direct attention from Trump during his whirlwind first day in office, in which he suggested levying 25 per cent tariffs on the US’s largest trading partners Canada and Mexico, leading traders to slash bets on a resumption of the trade war started in his first term.
Trump said on Tuesday that the 10 per cent tariff was being considered to punish China for the flow of the opiate fentanyl to Mexico and Canada. The US has accused China of sending the chemicals used to make fentanyl to Mexico, where cartels manufacture the drug.
It was a repetition of an earlier threat the new president had made last year, on top of a campaign vow to impose a blanket 60 per cent levy on Chinese imports.
Traders widely expect the US dollar to continue to strengthen against the currencies of major trading partners, including China, as higher tariffs and lower interest rates in China weigh on the renminbi.
More than a quarter of fund managers polled in a Bank of America survey said “long US dollar” was the most crowded trade in January.
“Market moves have in no way fully undone [the pricing of] tariff risk; if the US were to come out and say ‘no tariffs’ you would likely see a meaningful weakening in the US dollar,” said Tilton.
Stocks in the rest of Asia were broadly up on Wednesday. Korea’s Kospi rose 1.3 per cent and Japan’s broad Topix climbed 0.9 per cent. Taiwan’s benchmark index advanced 1 per cent while India’s Sensex edged up 0.2 per cent.
Source: Economy - ft.com
