Asian markets retreat as crunch G20 kicks off

June 28: Asian markets fell on Friday as investors keep a nervous watch on developments in the G20 summit, with trade top of the agenda and a key focus on the much-anticipated meeting between Donald Trump and Xi Jinping.

Equities have enjoyed a largely positive couple of weeks on hopes for progress in the head-to-head between the leaders of the world's top two economies, though the possibility of failure continues to make dealers nervous.

As heads of the 20 leading economies started the summit in Osaka, traders were biding their time, pushing regional markets lower, with Hong Kong and Shanghai each down 0.5 percent and Tokyo heading into the break 0.6 percent lower.

Sydney, Singapore and Seoul slipped 0.2 percent apiece, while Taipei and Manila were also down, though Wellington and Jakarta edged up.

While most observers are not expecting a final deal to come out of the Trump-Xi talks, the broad consensus is for some sort of agreement to press on with negotiations, which stalled last month when the US president hiked tariffs on some Chinese goods.

"Compared with even a couple of weeks ago, the probabilities have shifted significantly in favour of a harmonious photo op, which is undoubtedly better than the doom and gloom walkout scenarios, but well short of a tight trade policy embrace," said Stephen Innes at Vanguard Markets.

But there remains some uncertainty about how the meeting will go, with the Wall Street Journal reporting that Xi plans to demand the US reverse a ban on doing business with Huawei as a condition for kickstarting talks.

The White House, however, said there were "no preconditions to these talks".

- 'Cautiously optimistic' -

Hannah Anderson, JP Morgan Asset Management global market strategist, was also cautious.

"We have watched this movie before: China and the US talk, leaks from policymakers on both sides encourage speculation we are close to a deal, things fall apart, the US presses forward with higher tariffs and markets express their displeasure with corrections and higher volatility."

While the China-US trade row is the major issue, Trump's spats with Japan and India over tariffs are also in focus.

Earlier Friday the US president said he expected some "very big" deals with the two countries, both of which he has previously blasted for what he calls unfair levies.

Oil prices were slightly lower but remain supported by this week's surprise jump in US stockpiles and tensions in the Middle East, while dealers are awaiting next week's meeting of OPEC and other top producers led by Russia, where they will decide on the future of their output cap.

"Expectations going into the weekend are looking cautiously optimistic for oil higher prices," said OANDA senior market analyst Edward Moya.

"While some of the rhetoric on Chinese demands on Huawei and Trump's unpredictability have many sceptical... both sides have political motivations to wrap up a trade deal by the fall and that would require a resumption of a constructive dialogue," he said.

"Russia is likely to play ball (over the output caps) as they seek to secure further investment and trade deals with the Saudis."

- Key figures around 0230 GMT -

• Tokyo - Nikkei 225: DOWN 0.6 percent at 21,220.52 (break)
• Hong Kong - Hang Seng: DOWN 0.5 percent at 28,488.28
• Shanghai - Composite: DOWN 0.5 percent at 2,982.51
• Euro/dollar: DOWN at $1.1368 from $1.1370 at 2050 GMT
• Pound/dollar: DOWN at $1.2666 from $1.2669
• Dollar/yen: DOWN at 107.63 yen from 107.78 yen
• West Texas Intermediate: DOWN seven cents at $59.36 per barrel
• Brent North Sea crude: DOWN four cents at $66.51 per barrel
• Bitcoin - UP at $11,500 from $10,305
• New York - Dow: FLAT at 26,526.58 (close)
• London - FTSE 100: DOWN 0.2 percent at 7,402.33 (close).

AFP/APP