China stocks, yuan slide as Washington, Beijing prepare trade salvos

A man’s legs are pictured as he looks at an electronic board showing stock information is pictured at a brokerage house in Beijing, China, January 5, 2016. (Reuters pic)

SHANGHAI: Chinese stocks slipped on Thursday and the yuan gave back some of its recent gains against the dollar a day before China and the United States were due to set punitive tariffs on each other’s goods, heightening fears of a global trade war.

Markets are on edge ahead of Friday, when US tariffs on $34 billion worth of Chinese products – and retaliatory Chinese tariffs on US goods of the same value – are expected to kick in.

The declines in the yuan and stocks come the same day the central bank’s targeted cut of reserve requirements for banks took effect, which is expected to release additional liquidity in the financial system.

The blue chip CSI300 Index ended the morning trading session down by 0.59% and the Shanghai Composite Index was down 0.88%.  Hong Kong’s Hang Seng Index was also down about 0.8%.

At 0330 GMT, the yuan was trading at 6.6380 per US dollar after ending the late night session at 6.6330.

The yuan’s midpoint was set within market expectations, according to traders, but volume shrunk on Thursday morning as investors went into a holding pattern on the eve of the tariff implementation on Friday.

Daily trading volume dipped to US$7.951 billion as of 0324 GMT, about half of normal volume.

In June, the yuan suffered its worst month on record, falling 3.3% against the dollar.

“The yuan is likely to continue range-bound trading before Friday,” said a trader at a Chinese bank.

The reserve requirement cut, which was announced on June 24, releases about 700 billion yuan (US$105.5 billion) in liquidity, the People’s Bank of China said on Thursday.

(US$1 = 6.6377 Chinese yuan)