Risk aversion sets in again, weighing on stocks and lifting safe-haven assets

Tokyo — Stock markets in Asia tracked their global peers lower while the safe-haven dollar hovered near a two-week high on Wednesday, as heightened concern over international trade conflicts curbed investor appetite for riskier assets.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.5%. The Shanghai composite index retreated 0.4%. Australian stocks lost 0.75%, South Korea’s Kospi dropped 0.1% and Japan’s Nikkei shed 0.35%.

US stocks slipped on Tuesday as a drop in heavyweights Facebook and Nike added to worries over trade negotiations between the US and other major economies.

MSCI’s gauge of stocks across the globe shed about 0.5% the previous day.

“The US-Canada talks are due to resume today and this keeps trade issues at the forefront, with a wait-and-see mood prevailing in the equity markets,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.

Discussions between the US and Canada are expected to resume on Wednesday after the last round ended on Friday with no deal to revamp the North American Free Trade Agreement (Nafta), cooling investor confidence.

“Then there is the US-China trade issue, in addition to turbulence in the emerging market currencies that the markets have to worry about,” Ichikawa said.

The threat of fresh US tariffs on another $200bn worth of Chinese goods, which could take effect after a public comment period ends on Thursday, is also keeping investors nervous.

Emerging market stocks and currencies faced their latest round of pressure with news that South Africa had slipped into recession and concern brewing about inflation in Turkey.

Argentina’s peso finished the day more than 2% weaker on Tuesday. The peso fell although US President Donald Trump voiced support for Argentina’s President Mauricio Macri and his efforts to win IMF financing in the wake of a deepening economic crisis.

Argentina’s economy minister, Nicolas Dujovne, met IMF chief Christine Lagarde in Washington on Tuesday and both said they were working together to improve a $50bn standby finance deal agreed with the IMF’s executive board in June.

“If a larger credit line from the IMF is not forthcoming, then in an environment of rising dollar and US interest rates it is hard to see where the relief will come from for the peso — and indeed other emerging market currencies with twin deficits and high levels of dollar-denominated debt,” wrote currency strategists at Rabobank.

With investors avoiding emerging market currencies, the dollar was supported thanks to its safe-haven appeal.

The greenback extended its overnight rise against the yen to touch a near one-week high of ¥111.71.

The dollar index, which measures the greenback against a basket of six currencies, was a touch lower at 95.360 but in close reach of a two-week high of 95.737 set on Tuesday.

The euro was 0.15% higher at $1.1599 following a loss of 0.35% on Tuesday.

The dollar had also drawn strength on Tuesday from upbeat US indicators supporting the case for further interest rate hikes by the Federal Reserve.

Data on Tuesday showed US manufacturing activity accelerated to more than a 14-year high in August, boosted by a surge in new orders.

The Australian dollar was up 0.4% at $0.7204 following stronger than expected domestic second-quarter GDP data. The Aussie managed to pull away from $0.7157, its lowest since May 2016 plumbed on Tuesday.

China’s yuan was a shade firmer in onshore trading at 6.8469 per dollar after losing 0.25% the previous day.

Crude oil prices dipped, weighed by a stronger dollar which tends to burden non-US buyers of dollar-denominated commodities.

Brent crude futures were down 0.2% at $78.03 a barrel after brushing a three-month peak of $79.72 on Tuesday. US crude futures were down 0.6% at $69.46 a barrel.

Oil prices partly reversed a strong jump from the previous day, as the impact of a tropical storm on US Gulf coast production was not as strong as initially expected.

Prices jumped the previous day as dozens of US oil and gas platforms in the Gulf of Mexico were shut in anticipation of tropical storm Gordon hitting the region.

Reuters