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ICBC Financial Market Daily Review - October 30, 2018

I. Yesterday’s News
International News

1. The United States is preparing to announce tariffs on all remaining Chinese imports by early December if talks next month between presidents Donald Trump and Xi Jinping fail to ease the trade war, Bloomberg reported on Monday. The list would apply to imports from China that aren't already covered by previous rounds of tariffs, which may be $257 billion using last year's import figures, Bloomberg reported, citing people familiar with the matter. Though final decisions have not been made, U.S. officials are preparing for such a scenario in case a planned Trump-Xi meeting yields no progress on the sidelines of a Group of 20 summit in Buenos Aires in November, according to the report.

2. Opening a new front in its trade and technology disputes with China, the Trump administration on Monday took action to cut off a Chinese state-backed semiconductor maker from U.S. exports of components, software and technology goods. The Commerce Department said it has put Fujian Jinhua Integrated Circuit Co Ltd on a list of entities that cannot purchase such products from U.S. firms, citing a "significant risk" that the Chinese firm's new memory chip capacity will threaten the viability of American suppliers of such chips for military systems. The action against Fujian Jinhua is likely to ignite new tensions between Beijing and Washington since the company is at the heart of the "Made in China 2025" program to develop new high-technology industries.

3. U.S. consumer spending rose for a seventh straight month in September, but income recorded its smallest gain in more than a year on moderate wage growth, suggesting the current pace of spending was unlikely to be sustained. The report from the Commerce Department on Monday also showed the increase in income at the disposal of households was the smallest in 15 months and savings dropped to their lowest level since December last year. There are signs the stimulus from the Trump administration's $1.5 trillion tax cut package has peaked. Higher interest rates and falling household wealth after a sharp stock market selloff are also casting a shadow on spending.

4. German Chancellor Angela Merkel said on Monday she would not seek re-election as party chairwoman and that her fourth term as chancellor would be her last, heralding the end of a 13-year era in which she has dominated European politics. Merkel, 64, has been chairwoman of her conservative Christian Democrats (CDU) since 2000 and chancellor since 2005. Her decision to step down as chairwoman comes after her party suffered its second regional election setback in as many weeks.

5. Finance minister Philip Hammond held out the prospect of an end to Britain's long spending squeeze provided the government secures a Brexit deal with the EU, putting pressure on the divided Conservative Party to back Prime Minister Theresa May. Delivering an annual budget speech that sought to change the tone about tax and spending a decade after the financial crisis, Hammond announced tax cuts for households and the easing of welfare curbs for poorer working families. He also took aim at big tech firms such as Google, Facebook and Amazon with a new sales levy.

Domestic News

6. Profit growth in China’s industrial enterprises hit a six-month low, weighed down by sluggish production and sales, slower price rise and high base in the first six months of this year. Revenue growth of main business also hit a new trough in the year, adding to the industry, credit and other macro data in suggesting an mounting downward pressure on China’s economy. Pro-growth policy is expected soon as corporate profit growth slowed down.

7. Combined profits of China's state-owned enterprises (SOEs) reached 2.58 trillion yuan for the January-September period, up 19.1 percent year on year, down from 20.7 percent for the January-August period, according to the Ministry of Finance. the debt-asset ratios of SOEs also dropped 0.5 percent to 65 percent as of the end of September.

8. Profit growth in China’s industrial enterprises hit a six-month low, suggesting an mounting downward pressure on China’s economy and slower growth for corporate earnings, and triggering easing signs in China’s moves to crack down pollution. The Ministry of Ecology and Environment’s statement at the weekend showed more flexible and practical policy in limit output.

9. China is mulling bigger tax cuts and other fees reduction after a slew of policies it has released recently, according to a report from the China Securities Journal newspaper on Monday. The further move involves adjusting the value-added taxation (VAT) trimming three brackets to two, as well as reducing VAT taxation rates and social security contribution rates, the report said.

II. Market Overview
1. Global Market

The dollar edged higher against the euro on Monday, close to a 10-week high hit last week, on news German Chancellor Angela Merkel would not seek re-election as head of her CDU party. The pound drifted lower on Monday as Britain's finance minister Philip Hammond laid out the prospect of an end to austerity so long as Britain agrees a Brexit deal with the European Union.

2. Home Market

China's yuan slipped below 6.95 against the U.S. dollar after opening higher on Monday, while the midpoint rates surged over 130 bps to bounce off a 22-month low. FX demand remained strong, reviving market debate over whether the central bank will tolerate a slide through the highly sensitive 7 level.

Precious Metals

Gold eased on Monday, sliding off a more than three-month peak in the previous session, pressured by a strong dollar and as investors returned to riskier assets following a recent sell-off in global stocks. Spot gold was down at $1,229.35 per ounce. U.S. gold futures settled down $8.20, or 0.7 percent, at $1,227.60.

1.Crude Oil

Oil prices edged lower on Monday, with futures on track for the worst monthly performance since mid-2016, after Russia signaled that output will remain high and as concern over the global economy fueled worries about demand for crude. Brent crude futures fell 28 cents to settle at $77.34 a barrel. U.S. West Texas Intermediate (WTI) crude futures fell 55 cents to settle at $67.04 a barrel. Global benchmark Brent was on track to drop about 6.6 percent for the month. U.S. crude was on course to fall about 8.5 percent. Both were set for the steepest monthly decline since July 2016.

2.Base Metals

Copper prices steadied on Monday with support from shortages created by tumbling inventories on the London Metal Exchange countering concern over growth and demand because of the U.S.-China trade dispute. Inventories of copper in LME-approved warehouses, at 143,125 tonnes, are down more than 60 percent since the 2018 peak near 390,000 tonnes. Benchmark copper on the LME ended unchanged at $6,160 a tonne, having touched a session high of $6,240.

U.S. Treasuries
1. U.S. Bonds

Yields on U.S. Treasury bonds fell modestly on Monday afternoon after stocks took a nosedive on a report that President Donald Trump was preparing more tariffs on imports from China.

2. Chinese bonds

Overnight weighed interest rates plunged almost 20 bps amid ampler liquidity in interbank bank market as more money was injected into market at month-end. Non-banking institutions can easily borrow 7-day funds. Liquidity is expected remain stable in the near term after the central bank suspended repo and stepped up money withdrawal.

Stock Market
1. U.S. Equities

U.S. stocks fell in a volatile session on Monday, with the benchmark S&P 500 index ending close to confirming its second correction of 2018, hurt by fresh worries about U.S.-China trade policy tensions and a sharp drop in the big technology and internet shares. After the S&P 500 dropped more than 10 percent from its Sept. 20 record closing high during the session, the benchmark index pared its losses late to close down 9.9 percent from its peak. The Dow industrials also fell more than 10 percent from its Oct. 3 record close during the session, before ending down 8.9 percent from the mark. On Monday, the Dow Jones Industrial Average fell 245.39 points, or 0.99 percent, to 24,442.92, the S&P 500 lost 17.44 points, or 0.66 percent, to 2,641.25 and the Nasdaq Composite dropped 116.92 points, or 1.63 percent, to 7,050.29.

2. Hong Kong Equities

Hong Kong stocks ended Monday mixed in quiet trading. The Hang Seng Index rose 0.38 per cent, or 94.41 points, to 24,812.04, while the China Enterprises Index lost 0.46 percent to 10,012.63 points.

3. China Equities

China's major stock indexes fell 2.2 percent to over one-week lows on Monday as disappointing macro data and weakened global stocks overnight sent fresh jitters through the market. The liquor and some consumer sector led the decline as Maotai ’s earning report came out well blow market expectations. The market is expected to fall further to test previous lows at 2,449.20. The Shanghai Composite Index end 56.75 points or 2.18 percent down at 2,542.10, only inches away from previous lows at 2,486.42 hit on October 18. The turnover of Shanghai A shares slipped to 122.4 billion yuan from 133.3 billion yuan. The blue-chip CSI300 index closed 3.05 percent lower at 3,076.89 points.