Asian shares slip amid persistent trade tension

Tokyo — Global stocks faced headwinds on Tuesday, stymied by US-China trade frictions while the British pound flirted with two-and-a-half-year lows as Prime Minister Boris Johnson indicated he could call an election to block MPs’ efforts to avert a no-deal Brexit.

MSCI’s broadest index of Asia-Pacific shares outside Japan shed 0.3% while Japan’s Nikkei rose by 0.1%.

China’s mainland shares were fractionally lower while Hong Kong’s benchmark edged up 0.1%.

The US began imposing 15% tariffs on a variety of Chinese goods on Sunday and China began imposing new duties on US crude oil, the latest escalation in their trade war.

Though US President Donald Trump has said both sides would still meet for talks later this month, the tension has shown little sign of abating.

China said on Monday it lodged a complaint against the US at the World Trade Organisation (WTO) over US import duties, trashing the latest tariff actions as violating the consensus reached by leaders of China and the US in a meeting in Osaka.

“We have so many problems around the world, starting from the US-China trade war and Brexit. But investors appear to be getting used to be exposed to them,” said Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust Asset Management

“No one really thinks Washington and Beijing will solve the issues. But as long as the US economy keeps going, stock prices will have limited downside,” he said.

US manufacturing survey by the Institute for Supply Management (ISM) due at 2pm GMT on Tuesday is a major focus for investors.

Though US manufacturing activity has been slowing in recent months, the ISM’s index has so far stayed above 50, pointing to growth in the sector.

US bond yields rose a little on profit-taking after a market holiday in the US on Monday.

The 10-year US treasuries yield rose 2.5 basis points (BPS) to 1.53%, off a three-year low of 1.44% touched last week. The yield dropped 51.5 BPS in August, the biggest monthly drop since August 2011.

In the currency market, sterling dipped 0.25% to $1.20, after having dropped 0.85% on Monday. The currency stood just above its two-and-a-half-year low of $1.20 hit on August 12.

Prime minister Johnson implicitly warned MPs on Monday that he would seek an election on October 14 if they tied his hands on Brexit, ruling out ever countenancing a further delay to Britain’s departure from the EU.

“Depending on further developments in UK politics, the pound could experience sharp moves in the coming week or two. We think it could fall to as low as $1.13 this month,” said Sumino Kamei, senior currency strategist at MUFG Bank.

The uncertainty over Brexit has already hit the UK economy, with survey by the IHS Markit/CIPS showing British manufacturing contracted in August at the fastest rate in seven years.

The picture is not much better in Europe, and the European Central Bank (ECB) is widely expected to cut interest rates further into negative levels next week to cushion the blow, pressuring the euro.

The common currency fell 0.25% to a two-year low of $1.09. The two-year German government bond yield has dipped to minus 0.91% on Monday, near its record low around minus 0.96% hit in early 2017.

The offshore Chinese yuan dropped to a record low of 7.20 to the dollar on Tuesday morning while the Australian dollar lost 0.3% to $0.67, a stone’s throw from a decade-low of $0.67 hit last month.

The Reserve Bank of Australia is expected to keep its policy on hold on Tuesday, though many market players expect an interest-rate cut in October.

Argentine bond prices fell to record lows on Monday and the official and black market pesos diverged after the country imposed capital controls in a bid to stem a currency rout that is sharpening the risk of default.

The peso closed 0.88% stronger in official markets, but closed 0.79% weaker in the black market at 63.5 to the dollar.

Oil prices were also dented by concerns over the trade war. US West Texas Intermediate (WTI) crude lost 0.31% to $54.93 a barrel. International benchmark Brent futures rose 0.15% to $58.75 a barrel.

Reuters