Chinese stocks and renminbi hit by Donald Trump's threat of 10% tariffs

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The renminbi weakened and Chinese stocks fell after U.S. President Donald Trump said he could impose 10% tariffs on China starting next month.

The CSI 300 index of companies listed in Shanghai and Shenzhen closed 0.9 percent lower on Wednesday, while Hong Kong's Hang Seng index fell 1.6 percent, led lower by companies of mainland China listed on the territory.

The offshore renminbi, which trades outside limits imposed by Chinese financial authorities, weakened 0.3 percent on Wednesday to 7.29 per dollar before recovering to 7.27.

The dollar appreciated 0.15 percent against a basket of currencies including the pound sterling and the yen. The price of gold also hit an 11-week high of $2,758 per troy ounce.

The central question regarding tariffs is whether Trump wants [higher] customs tariffs or does he want them as a negotiating tool? said Andrew Tilton, chief Asia-Pacific economist at Goldman Sachs, who predicts more tariffs are likely.

China had largely avoided direct attention from Trump during his first whirlwind day in office, during which he suggested imposing 25 percent tariffs on the United States' largest trading partners, the Canada and Mexico, leading traders to reduce their bets on a resumption of the trade war started under his tenure. first term.

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Trump said Tuesday that the 10% tariffs were being considered to punish China for the flow of fentanyl opioids to Mexico and Canada. The United States has accused China of sending chemicals used to make fentanyl to Mexico, where cartels make the drug.

This is a repeat of an earlier threat made by the new president last year, in addition to his election promise to impose a 60 percent across-the-board levy on Chinese imports.

Traders widely expect the U.S. dollar to continue to strengthen against the currencies of major trading partners, including China, as rising tariffs and falling interest rates in China weigh on the renminbi.

More than a quarter of fund managers surveyed in a Bank of America survey said long U.S. dollar positions were the busiest trades in January.

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Market movements have by no means completely canceled each other out [the pricing of] pricing risk; If the United States declared there would be no tariffs, the U.S. dollar would likely weaken significantly, Mr. Tilton said.

Stocks in the rest of Asia were broadly higher on Wednesday. Korea's Kospi rose 1.3 percent and Japan's Topix rose 0.9 percent. Taiwan's benchmark index rose 1 percent while India's Sensex edged up 0.2 percent.

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