May 8, 2019: A red wave swept across Asia trading floors Wednesday as investors grow increasingly concerned that the China-US trade deal, which appeared all by ready to sign, could fall through.
After months of healthy gains across markets this year, Donald Trump's threat to hike tariffs on a raft of Chinese imports from Friday sent shockwaves around the world and rekindled the spectre of a painful trade war between the planet's biggest economies.
And while Beijing insisted it would still send its top negotiator to planned talks in the US on Thursday and Friday, observers said confidence has been shattered, with uncertainty reigning ahead of the high-stakes meeting.
“The two largest economic powerhouses, the US and China, either will be at a trade war or a trade peace and in reality, there's only a couple of people who know the answer to that and it isn't those of us on Wall Street,” said Larry Robbins, CEO of Glenview Capital Management.
“It's to be expected that there's some volatility into this critical week,” he told Bloomberg TV.
Asian markets staged a minor recovery Tuesday following the previous day's pummelling, which came in response to Trump's warning. But a blowout on Wall Street continued in Asia, with investors running for the hills.
Shanghai and Hong Kong each tanked one percent and Tokyo shed 1.6 percent by the break.
Sydney fell 0.4 percent, Singapore dropped 0.8 percent and Seoul retreated 0.3 percent, with Manila more than one percent lower.
Taipei and Jakarta also sank, while a first interest rate cut in five years was not enough to prevent Wellington dropping 0.5 percent.
– 'Inevitable reversal' –
And Stephen Innes at SPI Asset Management warned there could be worse to come.
“With the possibility of the trade deal in tatters, markets could turn upside down,” he said in a note. “Indeed, the relentless bull market seemed impervious to risk, but (that) spawned a high degree of complacency that leaves most market participants ill-prepared for the inevitable reversal.”
He added: “While the impact of more tariffs will be harmful to both the US and China economies, it is hard to overlook the damaging effect on other economies in Asia.”
World markets had already been showing signs of fatigue from their run this year, with signs of a slowdown in the world economy playing on investors' minds, while central banks have turned more dovish in recent months with an eye on this.
OANDA senior market analyst Jeffrey Halley said the trade deal was “the critical determinant of how deep or shallow the downturn will be”.
He added: “With global interest rates mostly at, or near, record lows except for the US, the world's central banks are ill-placed to cut rates to stimulate growth, as they reap the harvest of their excessively easy monetary policies over the last 10 years.
“In this context, the importance of the trade deal can be clearly noted.”
Dealers are keeping tabs on the release later in the day of Chinese trade data, which will be followed by the same figures from the United States.
On oil markets both main contracts edged up after buckling Tuesday under trade fears.
But observers are tipping a rough near-term for prices as supply gaps from Venezuela and Iran have been filled, while there is concern OPEC and Russia might not extend their output caps past next month, despite US production and stockpiles rising.
– Key figures around 0230 GMT –
Tokyo – Nikkei 225: DOWN 1.6 percent at 21,584.26 (break)
Hong Kong – Hang Seng: DOWN 1.0 percent at 28,897.98
Shanghai – Composite: DOWN 1.0 percent at 29,081.60
Euro/dollar: UP at $1.1198 from $1.1192 at 2100 GMT
Pound/dollar: DOWN at $1.3070 from $1.3072
Dollar/yen: DOWN at 110.09 yen from 110.26 yen
Oil – West Texas Intermediate: UP 46 cents at $61.86 per barrel
Oil – Brent Crude: UP 36 cents at $70.24 per barrel
New York – Dow: DOWN 1.8 percent at 25,965.09 (close)
London – FTSE 100: DOWN 1.6 percent at 7,260.47 (close)