China responds to US after Treasury designates Beijing as a currency manipulator - CNBC

A woman walks past the headquarters of the People's Bank of China in Beijing, China.

Jason Lee | Reuters

China's central bank has firmly rejected the U.S. Treasury's designation of Beijing as a currency manipulator, saying the accusation has "seriously" undermined the international financial order and risked further market turmoil.

The response from the People's Bank of China (PBOC) comes at a time of rapidly intensifying tensions between the world's two largest economies.

On Monday, the U.S. Treasury accused Beijing of deliberately influencing the exchange rate between the yuan and the U.S. dollar to gain an "unfair competitive advantage in international trade."

The move fulfills President Donald Trump's promise to recognize China as a currency manipulator for the first time since 1994.

The announcement followed a sharp drop in the yuan against the dollar, with the Chinese currency breaching the 7-per-dollar level for the first time since 2008.

China's central bank set the yuan's official reference point at stronger than the key 7 yuan-to-the-dollar point on Tuesday.

The move appeared to calm financial markets, initially rocked by fears the U.S.-China trade war was devolving into a currency war.

Late last week, China promised to fight back after Trump vowed to impose 10% tariffs on $300 billion worth of Chinese imports.

"The United States disregards the facts and unreasonably affixes China with the label of 'currency manipulators,' which is a behavior that harms others and oneself," the PBOC said in a statement on Tuesday, before adding: "The Chinese side firmly opposes this."

The PBOC said it would not only "seriously undermine the international financial order, but also trigger financial market turmoil. It will also greatly hinder international trade and the global economic recovery, and ultimately will suffer from it."

Unfair advantage

Even before the formal designation, Trump took to Twitter to voice his opinion, accusing Beijing of manipulating its currency and saying it would "greatly weaken China over time!"

The next step is for the U.S. to make its case to the International Monetary Fund (IMF), but it's not likely to lead to formal penalties.

The manipulator label is mostly symbolic and matters more as a slight to one of the United States' biggest creditors and an escalation in the trade war.

The Treasury Department's announcement hinged upon a 1988 portion of federal law that permits the U.S. Treasury Secretary to work with the IMF to "eliminate the unfair advantage" associated with currency manipulation.

'Return to the correct track of rationality'

"This unilateral act of the United States also undermines the global multilateral consensus on exchange rate issues and has a serious negative impact on the stable operation of the international monetary system," the PBOC said

"The Chinese side advises the U.S. to leap over the cliffs and return to the correct track of rationality."

Since the trade war started last year, Washington has imposed 25% tariffs on $250 billion worth of U.S. imports from China. Beijing retaliated by slapping elevated levies on billions of dollars of American products that it buys.

In recent months, however, tensions between the two countries have extended beyond trade and into areas such as technology and security. In particular, the U.S. placed Huawei on a blacklist which made it more difficult for the Chinese tech giant to do business with American companies.

— CNBC's Thomas Franck and Yen Nee Lee contributed to this report.

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2019-08-06 11:43:17Z
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Goldman Sachs no longer expects US-China trade deal before 2020 election - CNBC

U.S. President Donald Trump talks to journalists while departing the White House August 01, 2019 in Washington, DC. Trump is traveling to Cincinnati, Ohio, for a campaign rally.

Chip Somodevilla | Getty Images News | Getty Images

Goldman Sachs no longer believes the world's two largest economies will be able to resolve their long-running trade dispute before the U.S. presidential election next year.

It comes shortly after the U.S. officially designated China as a "currency manipulator, " amid rapidly intensifying tensions between the two economic giants.

On Monday, the U.S. Treasury accused Beijing of deliberately influencing the exchange rate between the yuan and the U.S. dollar to gain an "unfair competitive advantage in international trade."

The announcement followed a sharp drop in the yuan against the dollar, with the Chinese currency breaching the 7-per-dollar level for the first time since 2008.

Late last week, China promised to fight back after President Donald Trump vowed to impose 10% tariffs on $300 billion worth of Chinese imports.

Analysts at Goldman Sachs, led by Chief Economist Jan Hatzius, said in a research note published late Monday that they had anticipated this move.

"News since President Trump's tariff announcement last Thursday indicates that U.S. and Chinese policymakers are taking a harder line, and we no longer expect a trade deal before the 2020 election."

'A trade deal now looks far off'

In targeting the roughly $300 billion worth of Chinese goods that had not already been targeted by American levies, the U.S. president overruled the adamant objections of nearly his entire trade team, according to a report published by The Wall Street Journal on Sunday, citing people familiar with the matter.

The U.S. is set to impose the charges against Beijing from September 1.

"While we had previously assumed that President Trump would see making a deal as more advantageous to his 2020 re-election prospects, we are now less confident that this is his view," analysts at Goldman Sachs said.

The investment bank added China's decision to suspend purchases of U.S. agricultural goods and its decision to allow the yuan to breach the psychologically-important level of 7-per-dollar "added up to a swift and meaningful response" to Trump's latest tariff threat.

Citing reports that Chinese policymakers are increasingly inclined not to make major concessions and instead are prepared to wait until after the 2020 U.S. presidential election to resolve the dispute if necessary, Goldman said "a trade deal now looks far off."

Since the trade war started last year, Washington has imposed 25% tariffs on $250 billion worth of U.S. imports from China. Beijing retaliated by slapping elevated levies on billions of dollars of American products that it buys.

In recent months, however, tensions between the two countries have extended beyond trade and into areas such as technology and security. In particular, the U.S. placed Huawei on a blacklist which made it more difficult for the Chinese tech giant to do business with American companies.

— CNBC's Yen Nee Lee contributed to this report.

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2019-08-06 08:45:22Z
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Goldman Sachs no longer expects US-China trade deal before 2020 election - CNBC

U.S. President Donald Trump talks to journalists while departing the White House August 01, 2019 in Washington, DC. Trump is traveling to Cincinnati, Ohio, for a campaign rally.

Chip Somodevilla | Getty Images News | Getty Images

Goldman Sachs no longer believes the world's two largest economies will be able to resolve their long-running trade dispute before the U.S. presidential election next year.

It comes shortly after the U.S. officially designated China as a "currency manipulator, " amid rapidly intensifying tensions between the two economic giants.

On Monday, the U.S. Treasury accused Beijing of deliberately influencing the exchange rate between the yuan and the U.S. dollar to gain an "unfair competitive advantage in international trade."

The announcement followed a sharp drop in the yuan against the dollar, with the Chinese currency breaching the 7-per-dollar level for the first time since 2008.

Late last week, China promised to fight back after President Donald Trump vowed to impose 10% tariffs on $300 billion worth of Chinese imports.

Analysts at Goldman Sachs, led by Chief Economist Jan Hatzius, said in a research note published late Monday that they had anticipated this move.

"News since President Trump's tariff announcement last Thursday indicates that U.S. and Chinese policymakers are taking a harder line, and we no longer expect a trade deal before the 2020 election."

'A trade deal now looks far off'

In targeting the roughly $300 billion worth of Chinese goods that had not already been targeted by American levies, the U.S. president overruled the adamant objections of nearly his entire trade team, according to a report published by The Wall Street Journal on Sunday, citing people familiar with the matter.

The U.S. is set to impose the charges against Beijing from September 1.

"While we had previously assumed that President Trump would see making a deal as more advantageous to his 2020 re-election prospects, we are now less confident that this is his view," analysts at Goldman Sachs said.

The investment bank added China's decision to suspend purchases of U.S. agricultural goods and its decision to allow the yuan to breach the psychologically-important level of 7-per-dollar "added up to a swift and meaningful response" to Trump's latest tariff threat.

Citing reports that Chinese policymakers are increasingly inclined not to make major concessions and instead are prepared to wait until after the 2020 U.S. presidential election to resolve the dispute if necessary, Goldman said "a trade deal now looks far off."

Since the trade war started last year, Washington has imposed 25% tariffs on $250 billion worth of U.S. imports from China. Beijing retaliated by slapping elevated levies on billions of dollars of American products that it buys.

In recent months, however, tensions between the two countries have extended beyond trade and into areas such as technology and security. In particular, the U.S. placed Huawei on a blacklist which made it more difficult for the Chinese tech giant to do business with American companies.

— CNBC's Yen Nee Lee contributed to this report.

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2019-08-06 08:39:18Z
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The US and China are dragging currencies into their escalating fight. Here's what you need to know - CNBC

U.S. President Donald Trump attends a bilateral meeting with China's President Xi Jinping during the G-20 leaders summit in Osaka, Japan, June 29, 2019.

Kevin Lamarque | Reuters

For the first time in 25 years, the U.S. Treasury Department on Monday named China a currency manipulator — a move that looks set to worsen a trade war that has already dragged on the global economy.

That action from President Donald Trump's administration came after China allowed its currency, the yuan, to weaken to more than 7 per U.S. dollar — a level many analysts and investors considered important. Trump, for his part, called the slide in the Chinese yuan "a major violation."

Some analysts said Beijing's move to weaken the yuan was clearly made in retaliation to Trump's latest tariff threat. The president announced last week that Washington will slap 10% tariffs on $300 billion of Chinese goods starting Sept. 1. If that goes ahead, the U.S. will have imposed elevated tariffs on all goods it buys from China.

The U.S. and China — the world's top two economies — have over the past year been locked in a trade war that has spilled into areas such as technology and now currency. Trump's tariff threat last week came just after both sides resumed negotiations for a deal, which some experts said have become increasingly difficult to conclude.

Beijing, for its part, looks like it has "given up on the trade negotiation," David Cui, head of China equity strategy at Bank of America Merrill Lynch, told CNBC's "Street Signs" on Tuesday.

He explained that Beijing letting the Chinese yuan slide past 7 is "a big event" which adds to signs of "a protracted conflict" between the two countries.

On Monday, the Chinese central bank officially denied that it's decision to allow the yuan to weaken is meant as a response to American tariffs.

The number 7

China has maintained a tighter grip on the yuan compared to the way other major economies manage their currencies.

In recent years, Chinese authorities have loosened some controls on the currency, although the central bank — the People's Bank of China — only allows the yuan to move 2% in either direction of a "midpoint" that it decides daily. The PBOC is also known for its willingness to intervene in the foreign exchange market to buy or sell yuan to keep it within a desired range.

The Chinese authorities have not let the currency weaken past the 7 yuan-per-dollar threshold since the global financial crisis. In fact, they have in previous years — such as in 2016 — burned a substantial portion of their foreign reserves to defend the currency from breaching that mark.

It's for that reason that currency experts have long viewed that mark as a psychological important level. Breaching 7 yuan per dollar is a crucial development partly because investors don't know how much more weakness the PBOC is willing to tolerate, so they could sell their investments in China to curb losses — and thereby trigger significant capital outflows from the country.

One day after the Chinese yuan went past that important mark, the PBOC on Tuesday set a midpoint that would allow the currency to weaken to 7.1 against the U.S. dollar.

'Currency manipulator'

The U.S. has for years accused Beijing of artificially keeping the yuan weak in order to make Chinese exports cheaper. The administration of President Bill Clinton named China a "currency manipulator" in 1994.

But China has avoided that label ever since, although it had consistently featured in the "watch list" of the U.S. Treasury's semi-annual review of currency practices by America's trading partners. The watch list features countries that have been deemed to warrant close monitoring because they may be manipulating their respective currencies.

In the latest American review in May, China met only one of the three currency manipulation criteria under the Trade Facilitation and Trade Enforcement Act of 2015: Its "extremely large, persistent, and growing" bilateral goods trade surplus with the U.S.

But the U.S. on Monday slapped the label on China under an older law — the Omnibus Foreign Trade and Competitiveness Act of 1988. That offers "greater subjectivity" in naming a country a currency manipulator, said Khoon Goh, head of Asia research at Australian bank ANZ.

Under the 1988 act, the U.S. will have to negotiate with China or take its case to the International Monetary Fund. Potential penalties by the U.S. include:

• Banning the Overseas Private Investment Corporation — an American government agency that invests in developing countries — from financing China.
• Excluding China from U.S. government procurement contracts.

China is not a major recipient of government contracts or OPIC financing, so the currency manipulator label is mostly symbolic without "major consequences on its own," Goldman Sachs analysts said in a Tuesday report.

Trade war escalation

Still, the move by the U.S. Treasury marked further escalation in tensions between Washington and Beijing, according to analysts from Citi Research.

The analysts wrote in a Tuesday note they expect the U.S. to raise the tariff rate on the just-announced $300 billion tranche from 10% to 25% "as soon as next month." That's on top of the 25% tariffs already on $250 billion of U.S. imports from China — to which Beijing had retaliated with elevated levies on billions of American products that it buys.

China imports a smaller amount of goods from the U.S. compared to what it exports, so the Asian country has limited products on which it can slap additional tariffs. Some experts have suggested that China could dump its massive holdings of U.S. Treasurys, but such a move could harm Beijing too.

"The upshot is that China has few good options with which to directly hit back at the US. As such, policymakers are likely to focus on broader measures to offset the drag from tariffs," Julian Evans-Pritchard, senior China economist at consultancy Capital Economics, wrote in a Monday note.

Allowing the yuan to depreciate is one such measure. A weaker yuan makes Chinese goods relatively cheaper to buyers outside the country, so that could offset the additional levies that American importers must pay as a result of Trump's tariffs. Such a move also makes the U.S. dollar stronger in relative terms — which the American president has said he dislikes.

—Reuters contributed to this report.

Correction: The story has been updated to reflect the correct time frame since the U.S. named China a currency manipulator. 

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2019-08-06 07:42:31Z
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High-end retailer Barneys files for bankruptcy - CNN

The New York-based retailer filed for Chapter 11 bankruptcy protection early Tuesday morning. It said in a statement that it had also secured $75 million from affiliates of Hilco Global and the Gordon Brothers Group to help meet its financial commitments.

"Like many in our industry, Barneys New York's financial position has been dramatically impacted by the challenging retail environment and rent structures that are excessively high relative to market demand," Barneys CEO Daniella Vitale said in a statement.

The bankruptcy filing will allow the company "to conduct a sale process, review our current leases and optimize our operations," she added.

The company said it will continue to operate five flagship locations in New York, Los Angeles, San Francisco and Boston, as well as Barneys.com and BarneysWarehouse.com. However, it said it is shutting down stores in Chicago, Las Vegas and Seattle.

The company is also shutting down five "concept stores" and seven of its nine Barneys Warehouse stores.

The move was not unexpected. Reuters reported last month that filing for bankruptcy protection could help alleviate the pressure of expensive leases.

The company traces its history to 1923, according to its website, when Barney Pressman pawned his wife's engagement ring. The company indicated he used the funds to open a discount clothing store.

Barneys has several locations in the United States, but its headquarters and flagship store line the area around New York's Fifth Avenue, which for months has been emptied of prominent luxury retailers as they flee high rents and shifting consumer tastes.

Barneys is just the latest traditional retailer to file for bankruptcy protection. Charlotte Russe filed for Chapter 11 in February. And in October, Sears — which was drowning in debt — filed for bankruptcy after 132 years.

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2019-08-06 07:15:00Z
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Barneys Files for Bankruptcy, Plans to Close Most Stores - The Wall Street Journal

Barneys New York plans to close several stores across the U.S. Photo: Drew Angerer/Getty Images

By

Soma Biswas and

Soma Biswas
The Wall Street Journal
• Biography
• @SomaBisWSJ
• soma.biswas@wsj.com

Juliet Chung

Juliet Chung
The Wall Street Journal
• Biography
• Juliet.Chung@wsj.com

Updated Aug. 6, 2019 3:05 am ET

Barneys New York Inc. filed for bankruptcy protection with plans to close most of its stores and a $75 million financing package that would give the luxury retailer time to find a buyer.

The restructuring plan, filed early Tuesday morning, has Barneys, which operates 13 department stores and 9 warehouse stores, shutting down stores in Chicago, Las Vegas and Seattle. The retailer will continue to run seven stores, including its flagship Manhattan store, the company said.

Barneys Chief Executive Daniella Vitale said Barneys had been hurt by a broader downturn in retail as well as “excessively high” rent. Bankruptcy protection “will provide the company the necessary tools to conduct a sale process, review our current leases and optimize our operations,” she said.

The Wall Street Journal reported Monday the company was close to filing for bankruptcy and near a financing deal with Gordon Brothers and Hilco Global, firms specialized in selling assets for distressed companies. The loan was expected to fund the company’s stay in bankruptcy for 60 days while it attempted to clinch a deal with a buyer, according to people familiar with the matter. If Barneys cannot reach a deal, it would liquidate, they said.

Barneys is much smaller than rivals Saks Fifth Avenue and Neiman Marcus, which each operate about 40 department stores. Barneys was carrying approximately $200 million in debt, the people said.

The chapter 11 filing in the Southern District of New York indicates the company has more than $100 million in assets and more than $100 million in debts. The creditors include fashion houses such as Yves Saint Laurent, Balenciaga and Gucci.

The retailer, controlled by the New York hedge fund Perry Capital, struggled to navigate the rise of e-commerce as well as a steep rent hike for its flagship store in Manhattan. The rent nearly doubled this year to $27.9 million from $16.2 million. Barneys fought the rent increase but lost during an arbitration proceeding earlier this year, prompting the retailer to hire restructuring advisers.

Barneys’ existing lenders Wells Fargo & Co. and TPG Sixth Street Partners, a credit investor partly owned by private-equity firm TPG, allowed the company to take the junior loan from Gordon and Hilco.

A number of potential buyers have expressed interest in the iconic chain but need time to complete their due diligence, some of the people said.

In recent months the company hired restructuring advisers and lawyers M-III Partners LP, Houlihan Lokey Inc. and Kirkland & Ellis to negotiate a restructuring and prepare a bankruptcy filing.

A bankruptcy filing would mark the second trip through bankruptcy court for the retailer, which filed for protection from creditors in 1996. It avoided another bankruptcy in 2012 when Perry Capital, one of its lenders at the time, took majority ownership of the company in an out-of-court deal.

Barneys’ travails come as traditional retailers are struggling with the shift to online shopping and facing off against a host of technology-driven startups like Net-a-Porter, an online fashion seller, and The RealReal Inc., which lets consumers buy or sell secondhand luxury goods.

Department stores, in particular, have struggled to bring shoppers into their cavernous locations. Chains from Macy’s Inc. to J.C. Penney Co. have closed hundreds of stores, and others, including Sears and Bon-Ton Stores, have resorted to bankruptcy filings.

—Andrew Scurria contributed to this article.

Write to Soma Biswas at soma.biswas@wsj.com and Juliet Chung at juliet.chung@wsj.com

Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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2019-08-06 07:05:00Z
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Dow plunges more than 870 points after China escalates trade war with US - Honolulu Star-Advertiser

• 

  Specialists Paul Cosentino, left, and Jeffrey Berger worked on the floor of the New York Stock Exchange, today. Stocks tanked again today on worries that President Donald Trump’s worsening trade war will threaten a global recession and drag profits for companies even lower.

Financial markets buckled after China escalated the trade war with the U.S., sending American stocks to the biggest drop of the year and sparking a rally in global bonds. Gold surged with the yen.

The S&P 500 Index plunged more than 3% and losses in the Dow Jones Industrial Average surpassed 870 points. Apple and IBM fell 5% and all but 10 S&P 500 names traded lower. The Cboe Volatility Index surged 33%. The 10-year Treasury yield was close to completely erasing the jump that followed President Donald Trump’s election. China’s yuan sank beyond 7 per dollar, a move that suggests the level is no longer a line in the sand for policymakers in Beijing. Oil tumbled.

Investors are starting to grasp the potential for a protracted conflict between the world’s two largest economies, with a Treasury-market recession indicator hitting the highest alert since 2007. As demand for haven assets spiked, gold made a run toward $1,500 an ounce and the Japanese yen extended its rally. Major cryptocurrencies, increasingly seen as a refuge during distressed times, climbed as Bitcoin approached $12,000.

“The trade war is now intensifying and it’s possible that a currency war will start as well,” said Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance. “Neither is good for the global economy and both will hurt equity markets.”

People’s Bank of China Governor Yi Gang said the nation won’t use exchange rates as a tool in the escalating trade dispute with the U.S. Yet for President Trump, the latest decline in the yuan is “called ‘currency manipulation”’. The American leader also indicated he’d like the Federal Reserve to act to counter the Chinese action. Swaps show bets the central bank will ease by 100 basis points by December 2020, a quarter-point more than what was priced in after last week’s cut.

The trade war has been a consistent catalyst for market volatility and hopes of a resolution are now being sent even further out in the horizon, according to Mike Loewengart, vice president of investment strategy at E*Trade Financial Corp. While that could continue to challenge portfolios, investors should not make the mistake of trying to time the markets amid the sell-off, he said.

“This too shall eventually pass, and bouts of volatility in recent months have shown this can happen quickly,” said Loewengart.

These are some key events to watch out for this week:

Earnings from financial giants include: UniCredit, AIG, ABN Amro Bank, Standard Bank, Japan Post Bank.

Five Asian central banks have rate decisions including India, Australia and New Zealand.

A string of Fed policy makers speak this week, including St. Louis chief James Bullard on Tuesday and Chicago’s Charles Evans a day later. All are Federal Open Market Committee voters.

Here are the main moves in markets (all sizes and scopes are on a closing basis):

STOCKS

The S&P 500 Index dipped 3.3% to 2,835.14 as of 2:33 p.m. New York time.

The Stoxx Europe 600 Index decreased 2.3%.

The MSCI Asia Pacific Index declined 2.4%.

The MSCI Emerging Market Index decreased 3.3%.

CURRENCIES

The Bloomberg Dollar Spot Index decreased 0.1%.

The euro advanced 0.9% to $1.1204.

The Japanese yen increased 0.6% to 105.97 per dollar.

BONDS

The yield on 10-year Treasuries declined 11 basis points to 1.73%.

Germany’s 10-year yield decreased two basis points to -0.52%.

Britain’s 10-year yield dipped four basis points to 0.512%.

COMMODITIES

The Bloomberg Commodity Index decreased 0.6%.

West Texas Intermediate crude declined to $54.69 a barrel.

Gold increased 1.6% to $1,480.30 an ounce.

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2019-08-05 18:56:15Z
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