(Zero Hedge)—Last week we explained how the escalating trade war between the US and China has gradually transformed into a theatrical war of who has the upper hand on any given day. And since it takes a long time for trade obstructions to hit the underlying economy, investors are keenly eyeing the stock, and especially FX, markets for any and every (early) indications of who has the upper hand (even if they are, as we show below, completely false).
Meanwhile in China, it’s all about the optics of not appearing to lose the trade war:
China state firms vow to boost share purchases to stabilize plunging markethttps://t.co/BkliKGFTIW
— zerohedge (@zerohedge) April 8, 2025
Yet so far in the trade war, there has been one notable difference: while US stocks have tumbled (and rightfully so, as Trump institutes shock treatment to ween the US out of its debt-funded reserve currency, trade deficit addiction) and the US dollar has been in freefall, Chinese stocks have been surprisingly resilient and barely dropping, while the yuan reversed its losses last week, which pushed it to a record low only to rebound sharply higher.
There is just one problem: like everything else out of China, it’s market reaction has also been 100% fake.
While the US reaction is understandable, since the political Fed is doing everything it can to tarnish Trump’s approval rating and rugpull the market, and economy, from under him… and for those who say this is nonsense, may we remind you this is precisely what Bill Dudley told the Fed to do during the first Trump trade war…
The day is August 27, 2019. Former NY Fed president Bill Dudley writes a Bloomberg oped saying “the Fed shouldn’t enable Donald Trump” and urged the central bank not to “provide offsetting stimulus” in Trump’s trade war with China.
Six years later, here we are pic.twitter.com/H6WT5O0cMD
— zerohedge (@zerohedge) April 11, 2025
… China, whose central bank is directly controlled by the CCP Politburo, has no such qualms, and as we reported last week, in order to stabilize the stock market China’s Plunge protection team, aka the “National Team”, unleashed a record buying spree of ETFs, which has prevented an all out rout.
At the same time, China has also clearly intervened in the FX market, ordering local banks to sell dollars and buy yuan after last week we saw the offshore yuan plunge to a record low against the dollar. To be sure, China wants devaluation, but not chaotic, uncontrolled devaluation which would spark the mother of all capital runs (Chinese banks have $63 trillion in assets (and by extension deposits), almost triple the US total).
Context: US commercial bank assets ($23.5 trillion) vs China commercial bank assets ($62.6 trillion). pic.twitter.com/6mYaVI2ORJ
— zerohedge (@zerohedge) February 19, 2025
As an aside, China’s FX intervention would fully explain the bizarre concurrent weakness in both the dollar and TSYs, which some overeager commentators are ascribing to the death of US dollar reserve currency status…
… when in reality it was just a few days of China dumping US bonds and selling the proceeds (US Dollars) to buy yuan.
what if pic.twitter.com/34mLPz8FAC
— zerohedge (@zerohedge) April 11, 2025
So going back to the core thesis, namely that in China it’s all about the optics of not appearing to lose the trade war at least through day to day indicators meant for simplistic, first-order indicator observers (which these days is pretty much everyone in the market), Beijing’s core prerogative remains to prevent a crash in either Chinese stocks or the yuan. And while we described above how China is defending the yuan (at the expense of Treasuries and the dollar, if only up to a point – the point being when China runs out of US reserves to sell), preserving stock market calm is just as important.
Which is why we weren’t at all surprise to read that Chinese bourses have set daily restrictions on net share sales by hedge funds and large retail investors, Reuters reported noting that Beijing has stepped up support for its stock markets in an intensifying trade war with the United States.
Two investor sources said a soft limit on daily net sales by individual hedge funds and big retail investors – implemented through verbal warnings from brokerages – had been set at 50 million yuan ($6.83 million).
Failure to comply risked a suspension of trading accounts by the stock exchanges, which have issued the directive, the Reuters sources added.
Echoing everything we have said in the past week, Reuters also adds that “China has taken a slew of measures to stabilise its domestic stock markets, reeling from an escalating trade war with the U.S.” and notes that “the moves have largely shielded stocks in China from the massive selling seen on global markets.”
Brokerages have been asked to closely monitor transactions by private funds and big retail clients, according to a notice issued late on Thursday and seen by Reuters.
The current 50 million yuan daily limit on net sales by investors could be lowered further if the market slumps again, the notice said.
It stands to reason that if you can’t sell, you will- drumroll – buy, and sure enough China and Hong Kong stocks reversed early declines on Friday and narrowed the week’s losses.
Furthermore, as we also reported last week, China’s state fund Central Huijin has vowed to increase stock holdings, a growing number of listed companies are buying back shares, and Chinese brokerages have pledged to steady the market amid higher tariffs and global recession risks.
“Such a restriction is understandable as you don’t want to act against state will,” said one of the brokerage sources. It’s also understandable since China can not afford to give the impression that Trump has leverage in the escalating trade war. Instead, since Chinese stocks are stable, it afford Beijing the optics of being treated almost as an equal, or someone who can match Trump’s tariff escalation blow by blow… when in reality China’s economy is disintegrating below the calm surface.
In other words, without the moves, Chinese stocks would be in freefall – just like its economy – and the yuan would be plunging, while the narrative that Trump is flip-flopping or otherwise “losing” to China, would be DOA. Yet, since the Fed has so far refused to counter its Chinese peers, Trump indeed finds himself at a disadvantage.
But that may soon change, because while the Fed may pretend it has no choice but to wait until the inflation from the tariffs manifests itself (some time in 2035) before easing, Bessent may take matters into his own hands, and without waiting for the Fed, ramp up the amount of treasury buybacks the US Treasury currently conducts every other day or so, in the open market (see full Buyback schedule here).
In fact, the Treasury secretary hinted at this himself in an interview with Bloomberg, when asked if he has contingency plans if the selloff becomes “more unnerving” (for example if foreign countries, i.e. China, may be selling US Treasuries in response to the trade war).
His answer: “we are a long way” from needing to take action, but “we have a big toolkit that we can roll out” if so, and included in that toolkit is the department’s buyback program for older securities, Bessent said. “We could up the buybacks if we wanted” (15’40” in the view below).
And that’s precisely what will happen in a few weeks (or even days) if China’s selling of Treasuries persists, sending yields plunging. The good news, is that this “soft QE” wouldn’t have to be in place too long: only long enough for China to run out of reserves… mostly via Belgium’s Euroclear…
Belgium (mostly China via Euroclear) Treasury holdings are where they were… just before China devalued its currency in 2015 and sold $1TN in US paper ($250BN via Belgium) to contain yuan collapse pic.twitter.com/DUYWqtUl60
— zerohedge (@zerohedge) April 11, 2025
… to sell. Which at the current pace of liquidations should be done by the end of the month.
Starting the Day With a Scripture-Inspired Roast Helps Center Your Thoughts on Eternal Truths Amid Temporal Pressures
The world can seem chaotic, especially right after we wake up. Many believers start their mornings reaching for something familiar — a hot cup of coffee — yet end up settling for mediocre brews that do little more than deliver a caffeine jolt. The daily grind of life, with its endless distractions, news cycles, and responsibilities, can leave even the most faithful feeling spiritually parched alongside their physical fatigue. What if your morning ritual could do more than wake you up? What if it could ground you in truth, nourish your body with exceptional quality, and quietly advance a kingdom purpose at the same time?
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