SHANGHAI (Reuters) – After a sharp sell-off, the yuan and the stock markets of China attempted a modest recovery on Friday, but investors were grappling with some of their worst losses in years due to a bitter dispute between China and the United States. United that threatened to explode. The second largest economy in the world.
The yuan it was set for its highest recorded monthly drop. Chinese stocks, in a downward spiral since the end of January, were also prepared for their biggest monthly decline since January 2016.
The sales wave highlighted the anxiety among investors as Washington and Beijing showed no signs of retreating Your tariff dispute.
The concern is that a mbadive sell-off in the yuan could trigger an outburst of capital outflows, which would put more pressure on the economy and complicate decision-making as the authorities raise defenses against the commercial battle with the United States.
The CNY = CFXS yuan has lost about 3.4 percent of its value against the dollar in June, is the biggest drop since the market exchange rate was unified in 1994. On Friday, it fell to its level lowest since November 2017, but ended the morning trading session at 6.6335 per dollar.
On the high seas, where the yuan trades more freely, the unit CNH = D3 also fell by a similar amount, to 6.6291 per dollar.
For graphs on Chinese yuan under pressure since the commercial row with EE. UU Threat market instability click reut.rs/2NaorZh
In stocks, the benchmark CSI300 .CSI300 rebounded 1.48 percent, while the Shanghai composite index .SSEC gained around 1.2 percent, although both fell around of 9 percent during the month. In Hong Kong, the Hang Seng Index index .HSI also rose more than 1 percent.
To see an interactive chart that compares the Chinese stock markets and the exchange rates of the yuan against other markets around the world, click on: tmsnrt.rs/2Kff2Sx
United States. President Donald Trump has shaken the order of world trade by trying to renegotiate the terms of some of the US trade relations, particularly with China.
US UU They are targeting $ 34 billion of Chinese goods for tariffs that will go into effect on July 6, and have threatened tens of billions of dollars more for similar tasks.
China's 10-year treasury futures for September delivery CFTU8, the most traded contract, rose 0.34 percent. A fixed-income portfolio manager said the sharp increase was the result of the central bank's "broad" liquidity pledges.
"The central bank is expected to intensify efforts to calm investors and slow down the rate of yuan depreciation that has led to risk aversion in regional markets, including a possible reintroduction of the countercyclical factor," Gao Qi , FX strategist at Scotiabank in Singapore, wrote in a note on Friday.
He expected "strong resistance" at 6.70 yuan per dollar.
Linus Yip, chief strategist at First Shanghai Securities, said the rebound in China and Hong Kong shares was "technical", and the fall of the yuan was hurting sentiment.
For graphs on China's main stock markets outperform global pairs to the downside as business problems weigh on click reut.rs/2Kz49qA
"Negative factors pursuing investors have not gone away", He said.
"The currency is the core, the fundamental badet clbad, a weakening of the currency is a symptom of the decrease in confidence and reduces the appetite for risk".
The sectors and stocks that were exposed to the depreciation of the yuan have been hard hit this month.
Real estate .CSI300REI fell 5.7 percent and remained in its fifth consecutive month of losses. The transport sector index .CSI300TRANS, whose components include many leading airlines, fell by 9.4 percent this month and was set for its steepest monthly decline since January 2016.
The flag operator Air China ( 601111.SS ) fell 20.5 percent so far this month, its fourth consecutive month of losses.
There have been signs of declining foreign interest in China A-shares.
Flows northward in the "share connection" scheme between Hong Kong and mainland markets last week saw its first weekly net outflow in three months, and it is on track to publish another week of net sales this week.
Traders said that the People's Bank of China (PBOC) has set the daily mid-point stronger than the models predicted in recent days, and interpreted it as an attempt to warn the market to make a "single bet" on the depreciation.
A merchant from a Shanghai regional bank who declined to be named said there had been a "filtering" of the mid-point fix, which the central bank establishes every morning, in an apparent attempt to prevent the yuan from falling as well. sharply.
"It is too early to say whether the countercyclical factor has been revived – if the market sentiment could recover on its own, there is no need to use the factor, the market still needs time to digest," the trader said.
In May 2017, the People's Bank of China added a secret "countercyclical factor" to its formula to calculate the mid-point, which helped put a floor under a declining yuan. Effectively eliminated factor x earlier this year as the yuan recovered.
The yuan has faced other emerging market currencies in the region, as well as a basket of currencies that the authorities use to measure their value.
The trader said demand for dollars was strong this week and could persist until July 6, when US tariffs on Chinese products come into effect. (This version of the story has been refined to remove strange words from the fifth paragraph)  Report by John Ruwitch, Winni Zhou, Samuel Shen, Andrew Galbraith and Liu Luoyan; Editing by Shri Navaratnam