Asian stocks fall by the most in a week as US-China standoff escalates

October 09
11:28 2019

Asian stocks fell the most in a week on Wednesday as the United States and China’s ever-expanding dispute over trade and foreign policy showed little sign of coming to an end, weighing on global economic growth.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.3%. Japan’s Nikkei slid 0.81%. Australian shares were down 0.92%.

U.S. two-year Treasury yields fell and the curve steepened in Asia after US Federal Reserve Chair Jerome Powell signaled further interest rate cuts and the resumption of bond purchases to address a recent spike in money markets rates.

Oil prices fell in Asia as US visa restrictions on Chinese officials and the addition of more Chinese companies to a US trade blacklist weighed on already slim hopes that Washington and Beijing could reach a truce at trade negotiations this week.

The United States and China are engaged in a year-long row that has slowly expanded beyond trade policy, suggesting even more damage to an already fragile global economy.

“Stock markets are still trying to price in the slowdown in global growth,” said Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Kokusai Asset Management Co in Tokyo.

“The dispute between the United States and China shows now sign of ending. We’re losing confidence in the US economy. There’s more uncertainty about where the Fed is really headed.”

US stock futures edged 0.06% higher in Asia, but sentiment was weak after the S&P 500 ended 1.56% lower on Tuesday in response to the US visa restrictions.

The US State Department announced the move just a day after the US Commerce Department cited the mistreatment of Uighur Muslims in China in its decision to add 20 Chinese public security bureaus and eight companies to a trade blacklist.

The US moves cast a pall over US-China trade talks in Washington, where deputy negotiators met for a second day to prepare for the first minister-level meetings in more than two months on Thursday and Friday.

Washington is also moving ahead with discussions about restrictions on capital flows into China, Bloomberg reported.

Tit-for-tat tariffs imposed by the United States and China have roiled financial markets and slowed capital investment and trade flows.

US President Donald Trump has said tariffs on Chinese imports will rise on October 15 if no progress is made in the negotiations.

Worries about US-Sino relations lifted safe-haven assets in Asia. The yen edged around 0.1% higher to 106.95 per dollar. Spot gold also rose 0.21% to $ 1,508.90 per ounce.

Sterling traded near a one-month low of $ 1.2196 due to reports that Brexit talks between Britain and the European Union were close to breaking down.

The two-year US Treasury yield fell to 1.4174%. The spread between two-year and 10-year Treasuries, the most common definition of the yield curve, widened to 11.3 basis points.

The Fed’s Powell, in a speech on Tuesday, flagged openness to further rate cuts and said the time to allow the Fed’s asset holdings to begin to expand again “is now upon us.”

The Fed had been shrinking its balance sheet as it unwound crisis-era bond buying programmes. Recent volatility in US money markets raised concern the Fed’s balance sheet became too small, leaving banks with inadequate reserves.

Powell said balance sheet expansion should not be read as an effort to stimulate the economy, but weak data on the US manufacturing and services sector last week rattled investors’ confidence that the US economy remained robust.

US crude fell 0.42% to $ 52.41. Slower growth in the United States and China, the world’s two-largest economies, suggests less demand for energy in the future.

A larger-than-expected increase in US crude inventories also fanned fears that the global oil market will continue to struggle with excess supply.Get access to India’s fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code “GETPRO”. Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.