ForexLive Asia-Pacific FX news wrap: 1. US/China to meet on trade & 2. China rate cuts

US/China trade talks to begin:

• US’ Bessent and Greer to meet with China rep on Economic Matters this week
• Bessent with juicy China trade talk details – we’ll decide what we are going to talk about
• China’ s Ministry of Commerce says is has “decided to agree to engage with the US”
• China confirms Vice Premier He Lifeng to talk trade with Bessent this week

PBOC rate cuts:

• PBOC/CSRC China supportive measures – in summary
• China unlocks more insurance capital for stocks, signals property support
• People’s Bank of China to cut Standing Lending Facility rate by 10bp
• China promises more local stock market support from sovereign fund
• China will help A-share listed companies affected by tariffs to cope with difficulties
• PBOC governor says will lower interest rates on structural policy tools by 25 bps
• People’s Bank of China sets 7-day reverse repo rate at 1.4% (from 1.5% previously)
• PBOC rate cuts: 7-day RR to 1.4% (from 1.5%), LPR 10bp cut also, RRR 50 bp cut
• PBOC sets USD/ CNY reference rate for today at 7.2005 (vs. estimate at 7.2124)
• PBOC Governor Pan says world is full of uncertainties – cuts rates
• Gold has been slammed lower, under US$3370

Other:

• Trump expected to announce the US will refer to the Persian Gulf as the “Arabian Gulf”
• Australia – Santos CEO says over 200 wells underwater due to floods in Cooper Basin
• Japan Jibun / S&P Global Services PMI for April 52.4 (flash was 52.2, prior 50.0)
• US may deport people to Libya
• New Hampshire governor signs crypto reserve bill into law
• ICYMI: US-UK trade talks make some progress on steel, autos, but deal timing still unclear
• WSJ reports “U.S. Orders Intelligence Agencies to Step Up Spying on Greenland”
• New Zealand employment report, Unemployment rate 5.1% vs. 5.3% expected
• Japanese media reports that Fujifilm will build a semiconductor materials factory in India
• 58 wallets made over $10 million each from Trump’s meme coin vs. 764,000 wallets that lost
• RBNZ says risks to the financial system have increased over the past six months

India/Pakistan conflict:

• Reports on intense shelling between Indian and Pakistani troops at 3 frontier locations
• India Launches Missile Strikes on Alleged Terror Camps in Pakistan

Other

• Forexlive Americas FX news wrap: US dollar slumps as trade deals remain stuck
• Oil: private survey of inventory shows headline crude oil draw larger than expected
• S&P closes lower for the second consecutive day
• Trade ideas thread – Wednesday, 7 May, insightful charts, technical analysis, ideas

It was an eventful day in Asia today with two nuclear powers
exchanging fire, a beginning to US/China talks scheduled, and rate
cuts/further supportive measures from the People’s Bank of China
and other Chinese authorities.

FX rates swing
around in response, as did gold and equities.

• India-Pakistan
  tensions escalate after cross-border strikes. India and Pakistan are both nuclear powers.

  India carried
  out strikes on nine sites in Pakistan and Pakistan-administered
  Kashmir early Wednesday, describing the taregts as “terrorist
  infrastructure” used to plan and direct attacks. Indian authorities
  stressed the operation was “focused, measured, and non-escalatory,”
  adding that no Pakistani military assets were hit.

• Pakistan responded
  with artillery, resulting in both sides exchanging heavy fire along
  the Line of Control that separates Pakistan-administered Kashmir from
  Indian-administered Kashmir
• India’s strikes follow
  weeks of intensifying hostilities after a deadly assault in the town
  of Pahalgam on April 22, where 26 civilians — mostly Hindu men —
  were killed by militants. It was the worst attack on civilians in the
  region in 20 years.

U.S. and China to
(finally) begin high-level trade talks

• The United States
  and China will hold formal trade negotiations this weekend in Geneva,
  their first high-level engagement since the eruption of a fresh
  tariff-driven trade conflict. China’s Ministry of Commerce
  confirmed Vice Premier He Lifeng will meet with U.S. Treasury
  Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer,
  in what both sides are framing as a critical effort to de-escalate
  tensions.

• Treasury Secretary Bessent said the talks aim to
  address “shared interests” and called current tariff levels
  “unsustainable,” while rejecting the notion of decoupling. “What
  we want is fair trade,” he said, noting that the world has been
  engaging with the U.S., but “China has been the missing piece.”
  The USTR added that Greer will engage directly with his Chinese
  counterpart to discuss paths forward on trade.
• China, for
  its part, said it agreed to the meeting after “repeated” outreach
  from Washington and following consultations with its domestic
  stakeholders. The Commerce Ministry emphasised that the talks must be
  conducted on equal footing and warned it would not tolerate coercion
  or double-dealing. The ministry also expressed concern that other
  nations in ongoing trade discussions with the U.S. might coordinate
  tariff measures against China, adding a strategic layer to Beijing’s
  decision to engage.

• Bessent tempered
  expectations, saying that the two sides have agreed to talk. The plan
  is that on Saturday and Sunday, we’ll agree on what we’re going
  to talk about. Bessent added that this initial meeting will be about
  de-escalation.

People’s Bank of China rate cuts

• Then it was over to China, where a joint briefing by officials from the
  People’s Bank of China, the National Financial Regulatory
  Administration and the China Securities Regulatory Commission. The
  officials included PBOC Governor Pan.

I
posted a bit of a summary of the measures, repeating that here, but
there is more detail in the posts above.

Equity
Market Stabilisation:

• Central
  Huijin, along with the PBOC, will step in as a quasi-stabilisation
  fund to help maintain stock market confidence.

• An
  additional 60 billion yuan (US$8.3 billion) from long-term insurance
  funds will be channelled into equities under an expanded pilot
  program.

Targeted
Liquidity and Credit Support:

• RMB
  300 billion in new re-lending funds will be allocated to support
  technological innovation and industrial upgrades.

• A
  new RMB 500 billion re-lending facility will be introduced to
  finance elderly care infrastructure and broader service consumption.

• The
  People’s Bank of China (PBOC) will expand the quota for capital
  market support tools to RMB 800 billion to deepen market-based
  financing.

• A
  new risk-sharing mechanism will be established to back technology
  innovation bonds, improving credit support for strategic sectors.

Monetary
Tools and Interest Rate Adjustments from the People’s Bank of China:

• The
  Reserve Requirement Ratio (RRR) will be lowered by 0.5 percentage
  points to boost banking system liquidity.

• A
  temporary cut in the reserve ratio for auto finance and leasing
  firms will bring it down from 5% to 0%, aiming to ease
  sector-specific funding constraints.

• The
  7-day Reverse Repo rate, a key short-term policy rate, will be
  trimmed by 10 basis points to 1.4%.

• The
  structural monetary policy rate will be reduced by 25 basis points
  to support targeted credit expansion.

• Interest
  rates on individual housing provident fund loans will be lowered by
  0.25 percentage points to reduce mortgage borrowing costs.

• The
  Standing Lending Facility (SLF) rate will be cut by 10 basis points,
  further easing interbank lending conditions.

—

Gold
continued its Tuesday swing higher, getting to above US$3430. It
wobbled around that level and down just a touch on the news of the
India/Pakistan fighting. When news subsequently broke of the
Bessent/Greer/He meeting ahead gold sold of heavily to lows circa
US$3360 before stabilising.

Major
FX was a little less wild. The USD broadly gained on the trade talk
meeting news. AUD/USD was an exception, the Australian dollar found
bids on China hopes. After topping above 0.6510 its subsided back
below 0.6490 though.

USD/JPY is 100 points higher on the trade talk news.

US
equity index futures rose on the trade talk news, these have
stabilised off their early highs.

This article was written by Eamonn Sheridan at www.forexlive.com.