Stocks get hammered as trade war heats up

Both the onshore and offshore yuan breached the 7.0 level against the dollar which investors see as a key threshold in currency value

Stocks are falling sharply on Wall Street after China let its currency sink to the lowest level in more than a decade, escalating its trade battle with the U.S.

"China dropped the price of their currency to an nearly a historic low". Trump has long attacked China for its currency policy, even though the Treasury has refrained from officially labeling the country a currency manipulator.

"This is a major violation which will greatly weaken China over time", he wrote on Twitter. Investors are particularly concerned that the Trump administration could try to devalue the dollar, sparking a currency war that could weaken Americans' purchasing power.

Chinese companies have stopped buying US agricultural products, China's Commerce Ministry said on Tuesday, a blow to USA farmers who have already seen their exports slashed by the more than year-old trade war. European shares and S&P 500 index futures also retreated, while the yield on 10-year U.S. Treasuries declined about 8 basis points to 1.77%, the lowest level since 2016.

Beijing had been expected to stop the yuan hitting the psychologically important level, but allowed it to hit an 11-year low in its onshore market.

Unhappy with the most recent round of negotiations in China, Mr. Trump issued a surprise threat Thursday to impose a 10% tax on $300 billion in Chinese imports.

"A 3% drop in a day is very significant, and you're seeing sizeable moves in every major foreign market", said Rich Weiss, chief investment officer of multi-asset strategies at American Century Investments. The report said that 2.27 million tonnes of usa soybeans had been loaded and shipped to China in July, since Trump met Chinese President Xi Jinping in Osaka at the G20 summit at the end of June.

China also said it would suspend the purchases of usa agricultural products.

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The National Pork Producers Council said in an email it was important to end the trade war so pork producers could "more fully participate in a historic sales opportunity".

Those accusations are "untrue" as Chinese companies have bought USA farm products, including soybeans, Cong Liang, Secretary General of the National Development and Reform Commission, said in an interview with China's state broadcaster on Monday, citing purchases agreed to during a trade truce in 2018.

Linette Lopez of Business Insider predicted this outcome on my KCRW podcast Left, Right & Center last Friday, saying, "This is a ideal excuse for Xi and the People's Bank of China to lower rates, to maybe let the Yuan depreciate a little bit and blame it on Donald Trump instead of their domestic situation".

U.S. stock prices were under pressure for most of the trading session, with the Dow Industrials down almost 950 points at the lows.

Beijing appears to have decided 'the currency is now also considered part of the arsenal to be drawn upon, ' said Robert Carnell, analyst at bank ING.

Lower bond yields hurt banks because they push interest rates on loans lower. It also adds more downward pressure on inflation, which some economists worry may be edging toward too weak. Citing unnamed sources, Bloomberg reported earlier on Monday that China has asked state firms to halt USA agriculture imports.

The Chinese central bank tried to discourage speculation last August by imposing a requirement that traders post deposits for contracts to buy or sell yuan.

This might be a knee-jerk response as the Renminbi falls beneath its $0.14 floor for the first time in eleven years.

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