China stocks stumble despite central bank liquidity support China 10:15

China pumps USD 109 billion into economy as trade war bites on growth

China pumps USD 109 billion into economy as trade war bites on growth

China's central bank announced Sunday it would reduce the reserve requirement ratio (RRR) for most banks by one percentage point, the fourth time this year the country has sought to free up credit for businesses as they face down $250 billion in United States tariffs.

The yuan was also down, as expectations of more easing measures by China, plus surging USA bond yields, exert downward pressure on the Chinese currency.

Asian markets fell on Monday, extending last week's sell-off as another strong U.S. jobs reading further fanned expectations the Federal Reserve will hike interest rates at a quicker pace.

The People's Bank of China (PBoC) has cut the reserve requirement ratio (RRR) for most banks by 100bps, effective from October 15. The losses in NY seeped into Asia, where Shanghai sank 3.7 percent, while Hong Kong lost 1.4 percent in the afternoon with property firms hit by expectations the city's banks will lift mortgage rates again as they track a likely Fed hike.

U.S. Vice President, Mike Pence in his speech last week increased Washington's pressure crusade against Beijing on Thursday by hinting malign Chinese efforts to emasculate Donald Trump before congressional elections that are about to take place next month.

The US is fighting a trade war with China which threatens the outlook for Chinese manufacturing and exports.

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Sunday's move will inject a net 750 billion yuan ($109.2 billion) in cash into the banking system by releasing a total of 1.2 trillion yuan in liquidity, with 450 billion yuan of that to offset maturing medium-term lending facility (MLF) loans.

But Nicholson noted that if the trade situation deteriorates further, China will have a number of levers to save its economy because President Xi Jinping has "political capital". "The issue is the loss of confidence", said Zhao, adding China is in a "liquidity trap" where there's a shortage of credit demand from the real economy, especially the private sector.

Yields of China's 10-year central government bonds have been trending lower this year, standing at 3.64 per cent at lunch break on Monday.

The 30-year Treasury bond reached a four-year high of 3.424 percent, and was at 3.4054 percent at the US close on Friday. In the spot market, the onshore spot yuan opened at 6.8718 per dollar and was changing hands at 6.8703 at midday, 93 pips weaker than the previous late session close and 0.19 percent softer than the midpoint.

Sydney retreated more than one percent, Singapore eased 0.5 percent, Seoul was 0.2 percent lower and Taipei gave up 0.8 percent. Reflecting expectations of further yuan weakening, the one-year non-deliverable yuan futures in Hong Kong fell to around 7.015 against the dollar on Monday, the lowest level in 15 months. Tokyo was closed for a public holiday.

Shares in Asia staggered on Monday as China's markets stumbled despite its central bank moving to pump more liquidity into the broader economy, as worries grow of a sharp knock to growth from an escalating trade dispute with the United States.

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