Markets in Asia were down on Monday as the lack of a US-China trade deal cast a cloud over nervous traders.
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.
Almost all Asian markets were lower as the week’s trading began, with Tokyo’s benchmark Nikkei 225 index closing down 0.7 percent.
Shanghai was down 1.2 percent, Singapore shed one percent, while Taiwan and Seoul both dropped 1.4 percent.
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.
With another round ending without a deal, markets are underpricing how long the US-China trade talks may drag on, Eleanor Creagh, a Sydney-based Australia market strategist at Saxo Capital Markets, told Bloomberg Television.
The “underlying relationship is going to be fraught with much deeper tensions,” she said.
Trump had accused Beijing of reneging on its commitments and ordered new punitive duties — which took effect Friday — on $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, according to US Trade Representative Robert Lighthizer.
Retaliatory measures
Beijing’s top trade negotiator, Vice Premier Liu He, had warned earlier that Beijing “must respond” to any US tariffs — while China’s state media blamed Washington for the lack of progress.
“US-China trade relations will continue centre stage this week with most other data and events relegated to a distant second place,” said 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 DC and Beijing.”
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 3 percent.
“Trade talks have come to a deadlock and it’s unlikely we’ll see the situation turn for the better in the near term,” said Raymond Chen, a portfolio manager with Keywise Capital Management Beijing Ltd.
“Now all eyes will turn to China’s policies and how it will stimulate domestic consumption to maintain its growth.”
The yuan dropped 0.6 percent in offshore trading Monday after having lost about 2.4 percent in May, making it one of the worst performing currencies in the world.
Japan yen — often a safe haven in time of crises — extended gains after capping its fourth weekly advance against the dollar on Friday.
Traders will also be watching this week for earnings reports from Chinese tech giants Tencent and Alibaba, and key data on China’s industrial production and retail sales slated for Wednesday — the same day figures are due for US retail sales and industrial production.
In Europe, stock markets rose at the start of trading on Monday, with London and Frankfurt both opening up 0.1 percent.
Key figures
London – FTSE 100: UP 0.1 percent at 7,212.68 points
Tokyo – Nikkei 225: DOWN 0.7 percent at 21,191.28 (close)
Shanghai – Composite: DOWN 1.2 percent at 2,903.71 (close)
Hong Kong – Hang Seng: closed for a public holiday
Euro/dollar: DOWN at $1.1232 from $1.1239 at 2100 GMT Friday
Pound/dollar: DOWN at $1.3001 from $1.3006
Dollar/yen: DOWN at 109.70 yen from 109.96 yen
Oil – West Texas Intermediate: UP 20 cents at $61.85 per barrel
Oil – Brent Crude: UP 55 cents at $71.17 per barrel
New York – Dow: UP 0.4 percent at 25,942.37 (close).