Asian shares tread water as trade tension takes away traders’ risk appetite

Sydney — Asian shares stumbled on Wednesday as the Sino-US trade talks produced nothing but a stream of conflicting messages, while concerns about a glut of supply left oil prices nursing their biggest one-day loss in seven weeks.

Figures from the American Petroleum Institute out late on Tuesday showed a far larger rise in crude stocks than expected. That followed reports Russia was unlikely to deepen its cuts to crude output.

Brent crude futures eased another 5c to $60.86 a barrel, after sliding 2.6% overnight, while US crude recouped a slight 8c to $55.29.

The mood in share markets was subdued with MSCI’s broadest index of Asia-Pacific shares outside Japan off 0.7%. Japan’s Nikkei fell 0.8% and Shanghai blue chips 0.3%.

E-Mini futures for the S&P 500 shed 0.26% and Eurostoxx 50 futures 0.2%.

The prospect for progress on trade seemed to dim when China condemned a US Senate measure on Hong Kong, vowing to take the steps necessary to safeguard its sovereignty and security.

The Senate unanimously passed legislation aimed at protecting human rights in Hong Kong.

Late on Tuesday, US President Donald Trump had threatened to raise tariffs further if China would not agree to a deal that he liked. The aggressive tone unsettled Wall Street and the Dow ended down 0.36%, while the S&P 500 lost 0.06% and the Nasdaq added 0.24%.

Dour forecasts from retailers Home Depot and Kohl’s fuelled worries about consumer spending, while the energy sector was the S&P’s biggest loser as oil slid.

“The immediate focus remains on the US-China trade talks, and markets seem reluctant to move much in either direction until they are resolved,” wrote analysts at ANZ in a note.

“It was noticeable that fixed income markets rallied despite equity markets being stable, suggestive of a market that remains cautious about the growth outlook.”

Yields on US 10-year Treasuries dropped further to a two-week trough of 1.75%, with a marked flattening of the curve hinting at a possible return of recession fears.

The dip in yields nudged the dollar down on the safe-haven Japanese yen and it was last at 108.47, though still within the 107.87 to 109.48 range of the last five weeks.

The euro held at $1.1070 and faced chart resistance around $1.1090. The dollar was steadier on a basket of currencies at 97.901.

Investors are awaiting minutes of the Federal Reserve’s last policy meeting where it cut interest rates and signalled a pause.

“The minutes will elaborate on the Fed’s view that the downside risks to the US economy have eased, and that a ‘material reassessment’ of the economic outlook will be needed for it to cut rates again,” said Joseph Capurso, an analyst at Commonwealth Bank of Australia.

“We see the federal open market committee now on hold until March, 2020.”

The market has all but given up on the prospect of an easing in December, which is now priced at just 0.8%. A move in March is put at a probability of about 42%.

The risk-off tone left spot gold a shade firmer at $1,473.73 an ounce.

Reuters