Asian battle to decide on a direction ahead of crucial US-China talks

Shanghai — Asian shares wavered on Friday as investors were on edge before a crucial weekend meeting between the Chinese and US presidents that could determine the course of a heated trade war over the next year.

MSCI’s broadest index of Asia-Pacific shares outside Japan wobbled between positive and negative territory in early trade, as more evidence of a slowdown in China dampened sentiment. It was last up less than 0.1% and has risen 2.7% for the week so far, largely reflecting a rebound from a recent steep sell-off.

In Japan, the Nikkei was up 0.4%, while Korean shares dropped 0.2% after the country’s central bank lifted its policy interest rate in a widely expected decision.

Chinese blue chips advanced 0.5% despite a survey showing China’s factory growth stalled for the first time in more than two years in November.

The weak manufacturing growth reinforced expectations that Beijing will roll out more economic support measures — a factor that has helped to prop up battered Chinese stocks recently.

Investor attention is now squarely focused on planned talks between Chinese President Xi Jinping and his US counterpart at the weekend on the sidelines of a Group of 20 (G20) summit in Argentina.

Victor Huang, head of investment strategy at Guotai Junan International in Hong Kong, said a no-deal outcome could lead to “much more volatile” markets next week.

US S&P e-mini futures ticked down 0.06%, pointing to a weaker Wall Street session on Friday after a mixed overnight performance.

The Dow Jones Industrial Average fell 0.11%, the S&P 500 lost 0.22%, and the Nasdaq Composite dropped 0.25% on Thursday.

Adding to apprehension ahead of the Trump-Xi meeting were comments from a US official, who said White House trade adviser Peter Navarro, who has advocated a tougher trade stance with China, would attend.

The mixed signals from Washington about the prospects for a rapprochement with China on trade kept investors on the sidelines.

“Rather than jump at headlines, the market has taken a laid-back approach and prices are treading water until we see the outcome,” analysts at National Australia Bank said in a morning note.

Australian shares underperformed regional peers, falling 1.3% as beverage maker Coca-Cola Amatil, dropped 14.2% on a weak outlook for 2019.

“They billed it as another transformational year, which fund managers think means profit growth is not going to be that good,” said William O’Loughlin, investment analyst at Rivkin Securities in Sydney.

Global investors also remain hesitant to shift positions significantly as they seek clarity on Federal Reserve policy direction.

Minutes of the latest Fed policy meeting showed that almost all officials agreed another interest rate increase was “likely to be warranted fairly soon”, but opened debate on when to pause further hikes and how to relay those plans to the public.

The minutes follow comments from Fed chair Jerome Powell earlier this week that some took as indicating a dovish shift.

The yield on two-year US treasury notes, seen as sensitive to expectations of higher Fed fund rates, was at 2.8066% on Friday, down from a US close of 2.813%.