Asian stocks regain footing after early wobbles

Tokyo — Asian stocks shook off initial modest losses and edged up on Monday, ahead of a historic US-North Korea summit that investors hope might pave the way to ending a nuclear standoff on the Korean peninsula.

Stocks wobbled in early trade after US President Donald Trump raised fresh fear of a global trade war when he backed out of a joint Group of Seven communiqué at the weekend, in a blow to the group’s efforts to show a united front.

The S&P 500 futures were almost flat after dropping as much as 0.3%. MSCI’s broadest index of Asia-Pacific shares outside Japan slipped early but was last up 0.25%. Hong Kong’s Hang Seng gained 0.3% while the Shanghai composite index fell 0.3%. South Korea’s Kospi added 0.5%, and Japan’s Nikkei climbed 0.7%.

“What took place at the G7 weekend was within the scope of earlier expectations. And while the countries disagreed on trade, they did seem to show a unified front on the North Korean issue, so there is also a positive element from the G7 affecting risk sentiment,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

After the G7 meeting, the US president withdrew his support for its communiqué and raised fresh trade concerns by taking aim at Canadian Prime Minister Justin Trudeau amid a spat over import tariffs.

“The G7 meeting in Canada reiterated the growing rift between Washington and its allies over free trade,” wrote Tai Hui, chief market strategist for Asia Pacific at JPMorgan Asset Management.

“Business confidence, and subsequently capital spending, is at risk if this tension continues through the summer,” he said, adding that central bank meetings would be critical events this week.

Trump and North Korean leader Kim Jong-un will have an unprecedented meeting on Tuesday in Singapore, possibly laying the groundwork for ending a nuclear stand-off between the old foes.

Some analysts also raised the prospect of international sanctions against North Korea being lifted.

“There are many obstacles that will need to be overcome if a deal between the US and North Korea is to be agreed, not least a lack of trust between the two sides,” Gareth Leather, senior Asia economist at Capital Economics, wrote in a note to clients.

“Nevertheless, the improvement in ties between the US and North Korea has at least made the possibility of a deal, which sees economic sanctions on North Korea being lifted, seem a little less far-fetched.”

Investors also got prepared for a raft of other key events.

The Federal Reserve holds a two-day meeting starting on June 12, and it is widely expected to raise interest rates for the second time this year. The focus is on whether the central bank will hint at raising rates a total of four times in 2018.

The European Central Bank meets on June 14, when it could signal intentions to start unwinding its massive bond purchasing programme.

The Canadian dollar, which has been dogged by fears Trump may scrap the North American Free Trade Agreement (Nafta), fell 0.25% to C$1.2959 to the dollar.

The euro, which was lifted last week amid the prospect of the ECB signalling its exit from easy policy, was 0.25% higher at $1.1801.

The dollar erased earlier losses to trade 0.2% higher at ¥109.76 as regional equities gained and the US Treasuries yields rose ahead of a raft of auctions.

The dollar index against a basket of six major currencies was 0.05% lower at 93.498.

Oil prices were mixed, caught between the downward pull of rising Russian production and US oil drilling activity, and upward pressure from strong demand.

Brent crude futures were up 0.1% at $76.55 a barrel. US crude futures slipped 0.15% to $65.66 a barrel.

Bitcoin struggled near two-month lows after South Korean cryptocurrency exchange Coinrail said it was hacked at the weekend, raising concern about security at small- to mid-sized virtual currency exchanges.

Reuters