Asia shares fall with renewed Huawei tensions raising anxiety for US-China trade talks

World shares fell into the red on Monday, with equities markets from Asia to Europe buffeted as Chinese industrial profits fell and investors stayed cautious ahead of the US-China trade talks and the Federal Reserve's policy meeting.
A man walks past electronic boards showing Nikkei average (left) and the Dow Jones Industrial Average outside a brokerage in Tokyo, Japan, on Jan 4, 2019.
A man walks past electronic boards showing Nikkei average (left) and the Dow Jones Industrial Average outside a brokerage in Tokyo, Japan, on Jan 4, 2019.PHOTO: REUTERS

SYDNEY (REUTERS) - Asian shares faltered on Tuesday (Jan 29) and the US dollar hovered near two-week lows as prospects for a US-China trade deal was dealt a blow after the United States charged Chinese telecom firm Huawei with bank fraud and for conspiring to steal trade secrets.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.5 per cent with Australia's benchmark index down 0.7 per cent and South Korea's KOSPI off 0.6 per cent.

Japan's Nikkei slid over 1 per cent. US stock futures also lost ground following from a torrid overnight session on Wall Street, with E-Minis for the S&P 500 down 0.5 per cent.

Investors were nervously awaiting a fresh round of US-China trade talks with Chinese Vice Premier Liu He meeting US officials on Wednesday and Thursday.

Prospects for a deal between the economic giants will be tested as the US Justice Department unsealed indictments against China's top telecom equipment maker, Huawei, accusing it of bank and wire fraud to evade Iran sanctions and conspiring to steal trade secrets from T-Mobile US Inc.

Souring US-China relations roiled global markets for much of last year, and have now started to hurt world growth, one reason the US Federal Reserve has signalled it will be patient on policy after raising rates four times in 2018.

Overnight, markets got a reminder of the potentially damaging economic impact of the Sino-US trade war as Wall Street stocks were hit by profit warnings.

 
 

The losses came as shares of Caterpillar and Nvidia Corp nosedived after the two manufacturers joined a growing list of companies cautioning about the crippling effects of softening Chinese demand.

Caterpillar plunged more than 9 per cent for its worst single-day drop since August 2011 while chipmaker Nvidia slid 13.8 per cent.

"Both companies are seen as industry bellwethers and their disappointing results provide further evidence that this time China's slowdown is for real," said Rodrigo Catril, Sydney-based strategist at National Australia Bank.

The downbeat global growth impulse mean investors will look for further confirmation the Fed will pause its rate-hike cycle at a two-day policy meeting ending Wednesday.

Overnight on Wall Street, the Dow and S&P 500 each closed down 0.8 per cent and the Nasdaq was off more than 1 per cent.

WARNING BELLS

Worryingly, earnings at China's industrial firms too shrank in December, pointing to more troubles for the country's vast manufacturing sector already struggling with a decline in orders, job layoffs and factory closures.

Slowdown fears slugged the US dollar which faltered to its lowest in two weeks on Monday. The dollar's index, which measures the greenback against a basket of major currencies, was last at 95.766.

Against the safe haven Japanese yen, the dollar was down at 109.16, on track for a third straight session of losses.

Markets will have more catalysts this week with over a 100 of the S&P500 companies reporting results, including Amazon , Apple and Facebook.

Many economists, including the International Monetary Fund, have cut their forecasts for global growth this year citing the US-China trade war.

"Slowdown is feeding into some acute areas of economic unease," US investment bank Citi said in a note, citing recent disappointing factory output data out of Europe and China.

"In some respects, markets seem to have reacted more to recent negative changes in economic data than at other points in recent decades," it added, while noting investors are now pricing in a 1 per cent contraction in global earnings per share (EPS) this year.

"This would be the worst year-on-year per centage change in EPS since 2015" even though economic growth is seen much higher this year than in 2015.

Elsewhere, Sterling dithered against the dollar ahead of voting in Britain's parliament on Tuesday that aims to break the Brexit deadlock. It was last at US$1.3145

Oil remained on a slippery slope with US crude down 0.17 pct at US$51.90 a barrel and Brent easing a shade to US$59.90 a barrel.

US gold futures hovered near a seven-month high around US$1,303.6 per ounce.

Spot gold was last at 1,303.8 after breaking above a key psychological barrier of US$1,300 an ounce on Friday.