Asian shares stumble after US moves against Huawei

Sydney —  Asian shares stumbled on Tuesday and the dollar hovered near two-week lows as prospects for a long-awaited China-US trade deal was dealt another blow after the US levelled sweeping criminal charges against China’s telecom giant Huawei.

MSCI’s broadest index of Asia-Pacific shares outside Japan got off to a shaky start with losses accelerating as other regional markets opened.

Australia and New Zealand led the losses, with their benchmark indices down 0.7% each while South Korea’s Kopsi was off 0.3%. Chinese shares opened in the red too, with the blue-chip index down 0.2%.

Japan’s Nikkei slid about 1%. US stock futures also lost ground following from a torrid overnight session on Wall Street, with e-minis for the S&P 500 down 0.4%.

Investor sentiment, already shaken by pessimism over global growth, took another hit after the US justice department unsealed indictments against China’s top telecom equipment maker, Huawei, accusing it of bank and wire fraud to evade Iran sanctions and conspiring to steal trade secrets from T-Mobile US.

The jolt to Huawei could undermine prospects for a trade deal between the economic giants as markets nervously await a fresh round of trade talks with Chinese Vice-Premier Liu He set to meet US officials on Wednesday and Thursday.

Further complicating matters, China triggered the legal process on Monday for the World Trade Organisation (WTO) to hear Beijing’s challenge to US tariffs, and berated the US for blocking the appointment of judges who could rule on it.

Souring US-China relations roiled global markets for much of last year, and have kept investors on the back foot in January. The trade war’s broadening impact on world growth is one reason the US Federal Reserve has signalled it will be patient on policy after raising rates four times in 2018.

Overnight, markets got a reminder of the potentially damaging economic impact of the China-US trade war as Wall Street stocks were hit by profit warnings.

The losses came as shares of Caterpillar and Nvidia Corp nosedived after the two manufacturers joined a growing list of companies cautioning about the crippling effects of softening Chinese demand.

Caterpillar plunged more than 9% for its worst single-day drop since August 2011 while chipmaker Nvidia slid 13.8%.

“Both companies are seen as industry bellwethers and their disappointing results provide further evidence that this time China’s slowdown is for real,” said Rodrigo Catril, Sydney-based strategist at National Australia Bank.

The downbeat global growth impulse mean investors will look for further confirmation the Fed will pause its rate-hike cycle at a two-day policy meeting ending Wednesday.

Overnight on Wall Street, the Dow and S&P 500 each closed down 0.8% and the Nasdaq was off more than 1%.

Warning bells

Worryingly, earnings at China’s industrial firms too shrank in December, pointing to more troubles for the country’s vast manufacturing sector already struggling with a decline in orders, job layoffs and factory closures.

Slowdown fears slugged the dollar, which faltered to its lowest in two weeks on Monday. The dollar’s index, which measures the greenback against a basket of major currencies, was last at 95.758.

Against the safe-haven Japanese yen, the dollar was down at ¥109.17, on track for a third consecutive session of losses.

Markets will have more catalysts this week with over a 100 of the S&P500 companies reporting results, including Amazon, Apple and Facebook.

Many economists, including the International Monetary Fund (IMF), have cut their forecasts for global growth this year citing the US-China trade war.

“Slowdown is feeding into some acute areas of economic unease,” US investment bank Citi said in a note, citing recent disappointing factory output data out of Europe and China.

“In some respects, markets seem to have reacted more to recent negative changes in economic data than at other points in recent decades,” it added, while noting investors are now pricing in a 1% contraction in global earnings per share (EPS) this year.

“This would be the worst year-on-year percentage change in EPS since 2015” even though economic growth is seen much higher this year than in 2015.

Elsewhere, the pound dithered against the dollar ahead of voting in Britain’s parliament on Tuesday that aims to break the Brexit deadlock. It was last at $1.3148

Oil bounced after hefty overnight losses. US crude was last up 16c at $52.15 a barrel while Brent gained 18c to $60.11.

US gold futures hovered near a seven-month high around $1,302.3/oz. Spot gold was last at 1,303.3 after breaking above a key psychological barrier of $1,300/oz on Friday.

Reuters