Asian dealers cautious with eye on trade talks, geopolitics
HONG KONG: Asian traders were biding their time in early trade on Thursday as a healthy lead from Wall Street was tempered by geopolitical concerns and caution ahead of high-level China-US trade talks.
All three main US indexes finished in the green thanks to another positive round of economic indicators and corporate results.
However, traders remain on edge with expectations that inflation will pick up pace pushing key 10-year Treasury yields to seven-year highs and making it more likely the cost of borrowing will also go up.
In Hong Kong the Hang Seng Index fell 0.4 percent, Shanghai eased 0.5 percent and Sydney was 0.2 percent down while Seoul shed 0.5 percent. Taipei and Manila were also down.
However, Tokyo climbed 0.5 percent, with exporters boosted by a generally weaker yen. Singapore added 0.1 percent, while Bangkok and Wellington was also higher.
In early European trade London fell 0.2 percent, Frankfurt dipped 0.1 percent and Paris rose 0.1 percent.
Thursday sees the resumption of talks between the US and China on resolving a tariff spat that has seen each side threaten duties on billions of dollars of goods and which some fear could spark a damaging trade war.
China’s Vice Premier Liu He, Xi Jinping’s pointman on economics, is leading a delegation in Washington to meet Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross and Trade Representative Robert Lighthizer. However, it has emerged that China critic and top White House trade adviser Peter Navarro will not attend.
There are hopes they can find a breakthrough after a recent gathering in Beijing ended without agreement.
Developments on the Korean peninsula are also in focus after the North’s leader Kim Jong Un threatened to cancel a historic summit with Donald Trump because of Washington’s demands over its nuclear programme.
When asked Wednesday about whether the talks would still go ahead, Trump said “we’ll see”, adding he had not been informed of any change of plan yet.
On currency markets the dollar has benefited from bets on higher US rates, keeping it around multi-month highs against its major peers, with retail data this week having provided further support.
“The consumer remains the economy’s backbone, and if this robust trend in the retail space continues to build, factor in a bit of wage growth pressure and the US dollar will continue to move higher on the back of higher yields,” said Stephen Innes, head of Asia-Pacific trade at OANDA.
The greenback is holding at 2018 highs against the euro as horse-trading to form an Italian government fuels uncertainty in one of the eurozone’s biggest economies. A string of disappointing data on the economic bloc is also bearing down on the single currency.
And the pound enjoyed a rally on a report in Britain’s Daily Telegraph that said London would tell the EU it was prepared to remain in the customs union after Brexit.
The greenback’s strength has led the Hong Kong Monetary Authority to step into forex markets to support the city’s dollar again after it sank to its lowest allowed level against the US unit.
The de facto central bank spent US$1.2 billion to support the currency as it touched the bottom end of its permitted HK$7.75-7.85 bracket. The authority is required to step in at HK$7.85 to US$1 if local banks request it. The move follows similar measures in April.
The HKMA’s moves tighten liquidity in financial markets, putting upward pressure on interest rates for banks, which could eventually lead to higher borrowing costs for consumers and dent the property market. Oil prices edged up following data showing a drop in US stockpiles, while economic uncertainty in crude-rich Venezuela and the shadow of sanctions over Iran also lent support.
“The catalyst for the latest move appears to be more concerns about the state of the supply and demand balance and OPEC’s apparent unwillingness to do anything about it even as Iran faces fresh sanctions and Venezuelan production is pressured,” said Greg McKenna, chief market strategist at AxiTrader.