US-EU trade talks help Asian equities eke out gains

Shanghai/New York — Asian stocks inched higher on Thursday as the US and Europe agreed to negotiations to ease barriers on trade, but ongoing concern about the outlook for global growth weighed on sentiment.

A warning of slowing growth from Facebook, which sent the company’s stock down as much as 24% in after-hours trading on Wednesday, highlighted risks for investors and businesses in the current earnings season.

Detroit car makers General Motors, Ford Motor and Fiat Chrysler also lowered their full-year profit forecasts on Wednesday, in an indication that trade war worries are far from over.

Nearly three-quarters of economists polled by Reuters said trade protectionism would have a significant downward impact on global growth next year.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.1% on Thursday. After months of see-sawing prompted by uncertainty over trade, some markets were enjoying a relief rally, said Matt Simpson, senior market analyst at Faraday Research in Singapore.

“Possibly we’ve got a bit of Trump fatigue,” he said, referring to Trump’s turnabout on trade threats. “You know, nobody cares if it’s going to happen or not at this stage. They just want a slight change of tone.”

He said that ahead of US second-quarter gross domestic product (GDP) data on Friday, and a likely shift in the Bank of Japan’s stimulus policy next week, investors were “in a bit of a holding pattern.”

In China, the Shanghai composite index fell 0.6% and blue-chip shares lost 0.9%. Concept stocks linked to Facebook were among the day’s losers.

The prospect of weaker growth has prompted a loosening of fiscal policy in China as authorities seek to head off a slowdown. Most recently, China’s central bank gave notice to some domestic banks that it would ease a capital requirement to support lending.

Shares in Taiwan gained 0.2% and Seoul’s Kospi added 0.6%, with Korean investors taking heart from a respite in trade tensions.

But data on Thursday showed South Korea’s GDP grew at a slower pace in the second quarter, and export growth weakened.

Australian shares were down 0.1% and Japan’s Nikkei stock index was 0.2% lower.

After gains on Wall Street on Wednesday sparked by signs of sunnier days for US-Europe trade, S&P 500 E-mini futures turned lower Thursday morning in Asia, falling 0.2% to 2,834.75.

In a news conference following a meeting between the two leaders on Wednesday, US President Donald Trump said he and European Commission president Jean-Claude Juncker had agreed to work to lower industrial tariffs on both sides.

In what Juncker called a “major concession”, Trump agreed to hold off on car tariffs as the two sides launch negotiations to cut other trade barriers.

At the same time, Trump said Europe had agreed to increase purchases of US liquefied natural gas and lower trade barriers to American soybeans.

The most active soybean futures were up 2% at $8.93-1/4 a bushel, after touching their strongest level since July 9 at $8.95-1/4.

US soybeans are among the goods China included in retaliatory tariffs after Washington slapped additional levies on $34bn worth of Chinese goods on July 6.

But while the transatlantic mood was improving, “this deal, along with the breakdown of a large M&A deal, leave investors fearing that the trade war has just turned even more so on China”, Citi analysts wrote in a note on Thursday, referring to Qualcomm dropping its $44bn bid for NXP Semiconductors after failing to secure Chinese regulatory approval.

US Treasury yields remained higher after the Juncker-Trump meeting. The yield on 10-year notes was at 2.969%, compared with its US close of 2.936% on Wednesday.

The two-year yield, which rises with traders’ expectations of higher Fed fund rates, hit 2.6694% compared with a US close of 2.657%.

Earlier in the week, Treasury prices slumped along with Japanese government bonds on speculation the Bank of Japan may soon start to taper its massive stimulus.

The central bank is said to be considering changing the composition of exchange-traded funds it buys as part of its stimulus programme. It holds a two-day policy review on July 30-31.

The dollar dropped 0.2% against the yen to ¥110.77. The euro was up less than 0.1% on the day at $1.1735, while the dollar index, which tracks the greenback against a basket of six major rivals, fell 0.2% to 94.141.

US crude ticked up 0.1% at $69.39 a barrel.

Brent crude was 0.6% higher at $74.39 a barrel.

Gold moved slightly higher as the dollar eased. Spot gold was at $1,232.09 an ounce.

Reuters