Asian markets resume downward spiral on growing trade fears

(Hong Kong) REUTERS: A red wave swept across Asia trading floors yesterday as investors grew increasingly concerned that the China-US trade deal, which appeared all but ready to sign, could fall through.

After months of healthy gains across markets this year, Donald Trump’s threat to hike tariffs on US$200 billion of Chinese imports from Friday caused shockwaves and rekindled the specter of a trade war between the planet’s two biggest economies.

And while Beijing insisted it would still send its top negotiator to planned talks in the US today and tomorrow, observers said confidence has been shattered, with uncertainty reigning ahead of the high-stakes meeting.

“The two largest economic powerhouses, the US and China, either will be at a trade war or a trade peace and in reality there’s only a couple of people who know the answer to that and it isn’t those of us on Wall Street,” said Larry Robbins, CEO of Glenview Capital Management.

“It’s to be expected that there’s some volatility into this critical week,” he told Bloomberg TV.

Asian markets staged a minor recovery Tuesday following the previous day’s pummelling, which came in response to Trump’s warning. But a blowout on Wall Street continued in Asia, with investors running for the hills.

Shanghai and Hong Kong each tanked more than one percent, with investors also spooked by weaker-than-forecast export data out of Beijing that highlighted the impact of the trade war on China and the global economy.

Tokyo shed 1.5 percent by the close while Sydney and Seoul each fell 0.4 percent. Singapore dropped one percent and Manila was 1.4 percent lower. Taipei, Bangkok, Mumbai and Jakarta also sank.

However, a first New Zealand interest rate cut since late 2016 - and a signal of further reductions - helped Wellington reverse course to end 0.4 percent higher.

In early trade London was flat but Paris rose 0.2 percent, while Frankfurt jumped 0.5 percent.

Stephen Innes at SPI Asset Management warned there could be worse to come.

“With the possibility of the trade deal in tatters, markets could turn upside down,” he said in a note.

“Indeed, the relentless bull market seemed impervious to risk, but (that) spawned a high degree of complacency that leaves most market participants ill-prepared for the inevitable reversal.”

“While the impact of more tariffs will be harmful to both the US and China economies, it is hard to overlook the damaging effect on other economies in Asia,” he added.

World markets had already been showing signs of fatigue from their run this year, with signs of a slowdown in the world economy playing on investors’ minds, while central banks have turned more dovish in recent months with an eye on this.

OANDA senior market analyst Jeffrey Halley said the trade deal was “the critical determinant of how deep or shallow the downturn will be”.

He added: “With global interest rates mostly at, or near, record lows except for the US, the world’s central banks are ill-placed to cut rates to stimulate growth, as they reap the harvest of their excessively easy monetary policies over the last 10 years.

“In this context, the importance of the trade deal can be clearly noted.” On oil markets, both main contracts rose after buckling Tuesday under trade fears.

But observers are tipping a rough near-term for prices as supply gaps from Venezuela and Iran have been filled, while there is concern OPEC and Russia might not extend their output caps past next month, despite US production and stockpiles rising.