Asia markets pick up the pieces after Trump tariff sell-off

A man stands in front of an electronic board showing the Nikkei stock index outside a brokerage in Tokyo, Japan.
A man stands in front of an electronic board showing the Nikkei stock index outside a brokerage in Tokyo, Japan.PHOTO: REUTERS

HONG KONG (BLOOMBERG) - Investors are doing their best to feel their way forward on Tuesday (May 7) with the trade dust still far from settled after Asian markets were rocked Monday by a breakdown in talks between the US and China.

Though President Donald Trump's top trade negotiator confirmed plans to proceed with a tariff hike on Chinese goods on Friday, the next-day reaction in Asia has been fairly sanguine as investors tried to extrapolate the broader US strategy. On Wall Street, equities pared losses to close modestly lower overnight, though futures show some weakness ahead as traders brace for more volatility.

"I believe he is doing what he always does, the Art of the Deal," said Nader Naeimi, a Sydney-based fund manager at AMP Capital Investors Ltd., in an emailon Monday, referring to Trump's well-known book. "Play hard ball and then get a deal somewhere in between. The problem this time is there are real cracks in the US and he may not have the luxury of time before the cracks become gaping wide."

Investors in Asia are catching their breath. The MSCI Asia Pacific Index eked out a small 0.2 per cent loss as a post-Golden Week decline in Japanese shares weighed on the benchmark, while Chinese and Australian stocks had a modest rebound. Losses in Japan were not to the extent some expected as traders in Tokyo played catch-up on more than a week of news and market positioning. Korea's Kospi Index also retreated as Seoul returned from a Monday holiday.

Japan's Nikkei 225 fell 1.4 per cent while South Korea's Kospi index was down 1.2 per cent.

The Shanghai Composite Index is up about 0.3 per cent on volume 30 per cent below average at this time of the day, a small step forward after Chinese stocks erased US$487 billion in value yesterday.

Hong Kong's Hang Seng Index was up 0.1 per cent while Australia's S&P/ASX 200 rose 0.6 per cent.

Singapore's Straits Times Index edged up 0.2 per cent.

S&P 500 e-mini futures were down 0.7 per cent after index closed down about 0.5 per cent on Monday.

At the moment, trade progress appears to have taken a step back. US Trade Representative Robert Lighthizer said the US plans to raise tariffs on Chinese goods on Friday, confirming Trump's tweet threats.

The US is accusing Beijing of backpedaling on commitments it made during negotiations. Lighthizer and Treasury Secretary Steven Mnuchin told reporters Monday it became apparent the Chinese were backsliding during their visit to Beijing last week. Even so, trade talks will continue with the Chinese delegation still set to visit Washington Thursday and Friday, Lighthizer said.