In a strongly-worded editorial, the People’s Daily, China’s official newspaper, condemned that the US was “deliberately destroying international order”. The piece was published hours after US decision to designate China as currency manipulator, even though such issue was not mentioned. The editorial said the responsibility of big countries is to provide the world with stability and certainty. However, “some people in the United States do just the opposite”.

USD/CNH edged higher to 7.1399 earlier today but pulled back from there. It’s currently trading at 7.07, below yesterday’s close. There is sign that PBoC is looking at stem the free fall in Yuan. The general consensus remains that China wouldn’t want steep fall in Yuan exchange rate, which would trigger disastrous capital outflow and decline in asset prices. Instead, the Chinese government would likely prefer controlled depreciation.

Trump accused China for currency manipulation today, and with the same tweet, he also urged Fed to “listen” He said “China dropped the price of their currency to an almost a historic low. It’s called ‘currency manipulation.’ Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!” But it’s unsure what “historic low” he referred to.

On the other hand, China dismissed Trump’s claim that the country didn’t buy US agricultural products. A National Development and Reform Commission (NDRC) was reported saying that such accusation was “groundless”. The official noted China bought 130,000 tonnes of soybeans, 120,000 tonnes of sorghum, 60,000 tonnes of wheat, 40,000 tonnes of pork and products, and 25,000 tonnes of cotton from the United States between July 19 and August 2.

Also, the NDRC official also said China purchased 75,000 tonnes of hay, 5,700 tonnes of dairy products, 4,500 tonnes of processed fruits, and 400 tonnes of fresh fruits from the United States during the same period.

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In response to new US tariffs, Chinese Foreign Ministry spokesperson Hua Chunying reiterated that China doesn’t want a trade war, but it isn’t afraid of fighting one. She added that China will take counter-measures if the US is bent on putting more tariffs.

Senior Chinese diplomat Wang Yi also warned “additional tariffs is definitely not a constructive way to resolve economic and trade frictions. Hu Xijin, editor-in-chief of the government backed hawkish Global Times newspaper, said “new tariffs will by no means bring closer a deal that the U.S. wants; it will only make it further away.”

At this point, it’s uncertain what retaliation China would take yet. Possible measures include banning export of rare earth, and penalties against US companies in China, tariffs on crude oil and aircrafts, formalizing the “unreliable entities”, etc.

Just days after US trade team concluded a meeting with China in Shanghai, Trump suddenly announced to start imposing 10% tariffs on USD 300B of Chinese imports. That’s effectively the rest of all untaxed Chinese goods. New tariffs are expected to take effective on September 1.

Trump complained that Chinese President Xi Jinping was “not going fast enough” with his promises even Xi wanted to make a deal. And he threatened to raise tariffs further if China fails to more move quickly onwards. That could include moving beyond 25% tariffs already imposed on another USD 250B of Chinese imports.

In the financial markets, Yen surged broadly on risk aversion in reaction to sharp decline in stocks and treasury yields. DOW closed down -1.05% overnight. S&P 500 dropped -0.90%. NASDAQ dropped -0.79%. 10-year yield dropped -0.127 to 1.894, making new 2019 low. In Asia, Hong Kong HSI gapped down and is currently down -2.37%.