Lack of US-China trade deal weighs on Asian markets

Hong Kong, China | AFP | Monday 5/13/2019 – Markets in Asia were largely down in morning trade on Monday as the lack of a US-China trade deal cast a cloud over the market.

Investors watched the latest developments warily in the trade war between the world’s top two economies, after negotiations in Washington ended Friday without agreement and a tariff hike on Chinese imports went into effect.

White House economic advisor Larry Kudlow said US President Donald Trump and China’s Xi Jinping could meet next month on the sidelines of the G20 summit to hash out their differences on trade but no new talks are yet scheduled.

“Central banks this year have switched into this dovish pivot that’s allowed the market to continue higher whatever the weather” up until recently, Eleanor Creagh, Australia market strategist at Saxo Capital Markets, told Bloomberg Television.

“With the breakdown of these trade negotiations, people will have to sit back and think how far this dovish central bank stance can really continue to carry us.”

Trump had accused Beijing of reneging on its commitments in trade talks and ordered new punitive duties, which took effect Friday on US$ 200 billion worth of Chinese imports, raising them to 25 percent from 10 percent.

He then ordered a tariff hike on almost all remaining imports from China, which are worth about 300 billion dollars, according to US Trade Representative Robert Lighthizer.

China’s top trade negotiator, Vice Premier Liu He, had warned earlier that Beijing “must respond” to any US tariffs.

“US-China trade relations will continue centre stage this week with most other data and events relegated to a distant second place,” said Olsen & Associates (OANDA) senior market analyst Jeffrey Halley.

“China will no doubt announce retaliatory measures while the US may provide more concrete start dates for the newly imposed tariffs. Markets can expect short-term whipsaw price action as the street hangs on every little comment emanating from Washington D.C. and Beijing.”

Tokyo was down 0.5 percent, Shanghai lost one percent, Singapore shed 1.2 percent and Seoul slipped more than one percent in morning trade.

S&P 500 Index futures dropped as much as 1.2 percent and 10 year US yields are hovering near the lowest level since early April.

Amid nervousness in China markets, state funds reportedly intervened to prop up shares on Monday and again Friday when the Shanghai Composite closed up more than three percent.

Traders will also be watching this week for earnings reports from China tech giants Tencent and Alibaba, and key data on China industrial production and retail sales slated for Wednesday; the same day figures are due for US retail sales and industrial production.