Asian markets tread water as Trump stirs uncertainty

Tokyo — Market sentiment was a little shaky on Friday, with Asian shares on the defensive after US President Donald Trump scrapped a key summit with North Korea, though investors’ fears were calmed by Pyongyang’s measured response to the cancellation.

North Korean Vice-Foreign Minister Kim Kye Gwan said Pyongyang still hoped for a “Trump formula” to resolve the standoff over its nuclear weapons programme, noting that North Korea was open to resolving issues with the US.

MSCI’s broadest index of Asia-Pacific shares outside Japan was almost flat, while South Korea’s Kospi pared much of its earlier loss of 0.9%. Japan’s Nikkei was up 0.1%.

On Wall Street the S&P 500 ended 0.2% lower on Thursday, though it clawed back a large part of its earlier loss of 0.95%.

Even before the reaction from Pyongyang, there were no immediate signs of widespread investor panic, with Wall Street’s volatility index, seen as a gauge of investors’ fear, ending at a four-month low on Thursday.

Analysts said that level of calm reflected investors becoming accustomed to Trump’s dramatic negotiation style, in which he makes drastic calls before making compromises, and they were increasingly seeing North Korea’s Kim Jong-un adopt a similar approach.

“I suspect they couldn’t agree on denuclearisation. But looking at comments from the both sides, none of them is ruling out holding a meeting in the future. So I do not expect to see an immediate escalation in military tension,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

Adding to political jitters was Trump’s raising the spectre of high US tariffs on imported cars, reigniting fears of a trade war, although some investors see this as a Trump tactic to get better deals from big car-exporting countries.

The 10-year US Treasuries yield dipped to as low as 2.955% on Thursday as bond prices rose before it ticked back to 2.992% in Asia on Friday. It is still off a seven-year high of 3.128% hit a week ago.

“For many Asian markets, rises in US bond yields would have been a bigger problem (than cancellation of the meeting between Trump and Kim),” said Yukino Yamada, senior strategist at Daiwa Securities.

Concern that investors could shift assets from emerging markets to higher-yielding US bonds have been a major headwind for emerging markets.

The yen slipped in Asia after hitting a two-week high against the dollar on Thursday in a reflex flight-to-safety reaction to Trump’s manoeuvres.

The dollar traded at ¥109.60, up 0.3% for the day. But it was still off Monday’s four-month high of ¥111.395 and looks set to post its first weekly loss in nine weeks.

The yen is seen as a safe haven because of Japan’s status as the world’s largest net creditor nation.

The dollar extended its losses against the Swiss franc to hit 0.9886 franc overnight, its lowest level since April, before steadying at 0.9921.

The euro traded at $1.1712, slightly above its six-month low of $1.1676 touched on Wednesday, on course to mark its sixth consecutive declining week.

The currency was dogged by concern about a new coalition government in Italy to be formed by two anti-establishment parties, as well as mounting signs of an economic slowdown in the eurozone.

Among emerging market currencies, the Turkish lira tumbled again, giving up a large chunk of the gains it made after the central bank raised interest rates by 300 points on Wednesday.

The lira has been hit by concern about the central bank’s ability to tame double-digit inflation, particularly after President Recep Tayyip Erdogan — a self-described “enemy of interest rates” — said he expected to assert more policy control after June 24 elections.

The lira fell 1.5% in Asia on Friday.

Oil prices slipped, partly on speculation reduced supplies from Venezuela and Iran could prompt the Organisation of the Petroleum Exporting Countries (Opec) to wind down output cuts in place since the start of 2017.

Russia hinted it may gradually increase output, after having withheld supplies in concert with the Opec producer cartel since 2017.

Opec may decide in June to lift output to make up for reduced supply from crisis-hit Venezuela and Iran, which was stung by the US decision to withdraw from a multilateral nuclear arms control deal, Opec and oil industry sources told Reuters.

Brent crude futures stood at $78.68 a barrel, down 0.15% on Friday after a 1.27% loss the previous day.

US West Texas Intermediate (WTI) crude futures were little changed at $70.66 a barrel. They lost 1.57% on Thursday.

Reuters