Asian markets falter as US-China trade war, recession worries weigh

Reuters SHANGHAI | Updated on August 12, 2019 Published on August 12, 2019

Asian shares fell on Monday morning, while gold prices held firm as investors worried a prolonged US-China trade war could tip the world and US economies into recession.

In early trade, MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.17 per cent, after Wall Street broke a three-day winning streak to end lower on Friday. Australian shares dipped about 0.1 per cent while the South Korean market clawed back from early losses to rise 0.12 per cent.

Markets in Japan and Singapore were closed for a holiday on Monday.

US shares finished lower on Friday after US President Donald Trump said that Washington was continuing trade talks with Beijing, but that the US was not going to make a deal for now. Those comments helped to drive a late sell-off in a volatile session that saw the Dow Jones Industrial Average fall 0.34 per cent, the S&P 500 lose 0.66 per cent and the Nasdaq Composite drop 1 per cent.

Also read: 'Prolonged trade war could lead to a recession in the US'

White House trade adviser Peter Navarro subsequently said that the United States was still planning to hold another round of trade talks with Chinese negotiators.

The uncertainty and lack of progress around the talks have kept financial markets on edge over recent months, with investors pulling out funds from riskier assets amid the slowdown in global growth and corporate profits.

Worries about the damaging effects of the trade war between the world's two biggest economies were underscored by a warning from Goldman Sachs of the rising risk of a US recession, and that it no longer expects a trade deal before the 2020 US presidential election.

Elsewhere, there was little positive news. Data last week showed the British economy unexpectedly shrank for the first time since 2012 in the second quarter, while German industrial production suffered its biggest annual decline in nine years. All of that raised global recession fears as the escalating US-China tariff war took a toll on trade and investment.

“Cross asset correlations and money flow continue to tell (us) that this funk in markets is a genuine result of fear and uncertainty from traders and investors,” said Greg McKenna, strategist at McKenna Macro.

A flight to perceived safe-haven assets helped to lift the price of gold above $1,500 last week for the first time since April 2013. After giving up some gains on Friday, the precious metal was higher on Monday, rising 0.18 per cent to $1,499.52 per ounce.

Dollar down

In currency markets, sterling matched its January 17, 2017 low against the US dollar, buying as little as $1.2015 in early Asian trade Monday before trimming losses.

The British pound last bought $1.2028. It came under pressure on Friday after the downbeat data on the British economy.

The dollar dropped 0.25 per cent against the yen to 105.40, while the euro edged higher to $1.1203. The dollar index, which tracks the greenback against a basket of six major rivals, was barely changed at 97.513.

Oil prices dipped, having risen sharply on Friday on a drop in European inventories and production cuts by the Organisation of the Petroleum Exporting Countries. US crude was down 0.53 per cent to $54.21 a barrel and global benchmark Brent crude shed 0.51 per cent to $58.23 per barrel.

Published on August 12, 2019
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