June 6: Asian stocks reversed early gains Thursday as trade tensions continued to weigh on investors' minds, with some cautiously hoping that the United States and Mexico will strike a compromise on tariffs.
US President Donald Trump said some progress — but not enough — had been made in Wednesday's talks with Mexico on averting the tariffs he intends to impose next week unless the flow of undocumented migrants into the US is stopped.
Trump tweeted that discussions would resume Thursday.
Coming on the heels of the US-China trade war, Trump's threats against Mexico have intensified fears for the global economy, hurting oil prices and lowering overall growth forecasts.
A World Bank report released Tuesday showed reduced global growth forecasts for the year, with the economy expected to expand by 2.6 percent, well below the three percent increase seen in 2018.
Crude prices made a tepid recovery Thursday, following the previous day's decline after data from the US Department of Energy showed domestic production rising, and Morgan Stanley on Wednesday slashed its oil price forecast, citing a “sharper-than-expected slowdown in demand”.
“Oil prices remain under pressure, dragged down by an unexpected gain in US inventories and comments from the head of Russian state oil producer Rosneft questioning the point of a deal with OPEC to withhold supplies,” said Dean Popplewell, vice president of market analysis at OANDA.
But OANDA senior market analyst Edward Moya said oil markets “could see strong bullish momentum return if we see a softer US dollar, trade progress from the G20 Summit, prompting the alleviation of demand fears, geopolitical risks will keep supplies tight and rising summer demand”.
Hong Kong and Tokyo were flat while Shanghai dropped 1.2 percent. But Seoul eked out modest gains of 0.1 percent.
– Eyes on central banks –
There are hopes that Trump and Chinese President Xi Jinping will meet at the G20 summit in Japan this month to jump-start stalled tariff negotiations.
Investors are also looking ahead to Thursday's gathering of the European Central Bank, hoping for fresh measures to tackle rising worries about growth and inflation in the eurozone.
European markets edged up in early trade, with London climbing 0.4 percent and Paris gaining 0.1 percent. Frankfurt was flat.
Comments by Fed Chairman Jerome Powell on Tuesday acknowledging trade tensions and signalling that the central bank was willing to act if necessary helped investors overlook a weak report on US private-sector hiring.
The more closely watched US Labor Department report will be released on Friday.
Central banks around the world are adopting a more dovish tone on monetary policy, with the Reserve Bank of India cutting interest rates on Thursday in a boost to newly re-elected Prime Minister Narendra Modi, who is grappling with a sluggish economy and decades-high unemployment.
The third snip in borrowing costs this year — to 5.75 percent — in Asia's third-largest economy follows the release of data showing economic expansion falling to a five-year low.
On Tuesday, Australia's central bank lowered interest rates for the first time in three years in a bid to stave off a recession in the face of stiffening economic headwinds.
The Reserve Bank of Australia cut rates by 25 basis points to a historic low of 1.25 percent as the pace of growth slowed to levels not seen since the global financial crisis.
– Key figures around 0700 GMT –
- Tokyo – Nikkei 225: FLAT at 20,774.04 (close)
- Hong Kong – Hang Seng: FLAT at 26,893.98
- Shanghai – Composite: DOWN 1.2 percent at 2,827.80 (close)
- London – FTSE 100: UP 0.4 percent at 7,250.46
- Pound/dollar: DOWN at $1.2674 from $1.2686 at 2100 GMT Wednesday
- Euro/pound: UP at 88.59 pence from 88.47 pence
- Euro/dollar: UP at $1.1226 from $1.1225
- Dollar/yen: DOWN at 108.10 yen from 108.43 yen
- Oil – Brent Crude: UP 14 cents at $60.77 per barrel
- Oil – West Texas Intermediate: UP 12 cents at $51.80 per barrel
- New York – Dow: UP 0.8 percent at 25,539.57 (close)