New U.S. Tariffs cause China’s Shares to Swing Red

China’s stock markets dipped on Wednesday, as new U.S. tariffs and the heated trade war between the world’s two largest economies cast doubt over Beijing’s ability to improve its economy through pro-growth policies.

The Shanghai Composite index dropped 1.3%, and the blue chip CSI300 index fell 1.6% lower, reversing gains made in a recovery in the previous session according to Reuters.

On Tuesday, both of these stocks posted their greatest daily gains since 2016 but stocks returned to the red on Wednesday despite stronger-than-expected July export data.

Washington said it would begin collecting 25% tariffs on another USD 16 Billion in Chinese goods from August 23rd even though they’ve slapped tariffs on USD 34 Billion of goods last month.

The burst of trade blows from the Trump administration and little sign of compromise from both sides have left investors uncertain of a sustained turnaround for shares, even though Beijing pledges to support the economy and pump priming in the financial system.

Last week, a body of the ruling Communist Party promised more flexible and effective policy, and authorities are taking steps to offer more credit at cheaper interest rates to small and medium-sized firms.

The state planner on Wednesday said China would use monetary policy to support debt-to-equity swaps this year as it looks to decrease corporate leverage ratios.

The policies weighed on bonds Wednesday, with 10-year Chinese treasury futures for September delivery CFTU8 dropping 0.4% to 95.620.

Although stock markets remain unstable, there are signs that authorities are putting a floor under the yuan and discouraging bets on further losses that could cause capital outflows.

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