Asian markets struggle as growth worries replace trade hopes

An electric screen showing Asian markets indices outside a brokerage in Tokyo on July 1, 2019.
An electric screen showing Asian markets indices outside a brokerage in Tokyo on July 1, 2019.PHOTO: REUTERS

HONG KONG (AFP) - Uncertainty over the global economy weighed on Asian markets on Wednesday (July 3) as the tailwind from the China-US trade ceasefire petered out, with oil prices struggling to claw back the previous day's hefty losses and safe-haven gold rallying again.

While some tensions on trading floors have eased since US President Donald Trump and China President Xi Jinping's proclamation that negotiations were back on, analysts pointed to long-running concerns about weak growth and central banks' willingness to act.

Shanghai was one of the biggest losers after the head of the People's Bank of China (PBOC) appeared to temper expectations for near-term stimulus measures for the world's No. 2 economy.

Yi Gang said growth was near potential, interest rates were about right and monetary policy was accommodative enough to absorb various situations.

"Gang sent more hawkish signals by tempering expectations for significant credit growth in (the second half of) 2019" following the positive outcome of the Trump-Xi meeting, said Stephen Innes at Vanguard Markets.

"If this is true, it's horrible for a market that was positioning for a fillip from a PBOC policy response and a noteworthy shift from his dovish remarks just a few weeks ago that there is 'tremendous room' for additional policy stimulus in China."

The remarks come soon after data showed factory activity in China continued to shrink in June, adding to worries about the key driver of global growth as economies struggle to deal with the effects of the trade war.

Traders are also nervously awaiting the Federal Reserve's next policy meeting this month, with a 25 basis point cut in borrowing costs largely priced into markets, but with many hoping for double that figure.

The release of US jobs data on Friday is now in investors' sights, with a weak reading likely to put pressure on the bank to announce a slash this month.

Adding to the sense of dread, Bank of England boss Mark Carney warned of a "widespread" slowdown in the world economy from rising protectionism.

His comments came as it emerged that the White House had proposed tariffs on US$4 billion ($5.43 billion) in European imports over European subsidies for commercial aircraft.

"Trade optimism is beginning to fade as the truce with China is not even a week old and the US is looking for its next trade battle," said Oanda senior market analyst Alfonso Esparza.

In afternoon trade, Hong Kong was down 0.3 per cent, while Shanghai ended 0.9 per cent lower and Tokyo finished off 0.5 per cent.

Singapore fell 0.3 per cent, Seoul dropped 1.2 per cent and Taipei gave up more than one per cent with Jakarta 0.5 per cent lower. But Sydney was up 0.5 per cent, while Manila, Mumbai and Bangkok also edged higher.

In early trade, London and Frankfurt each rose 0.2 per cent while Paris added 0.1 per cent.

Gold prices, which fell this week from six-year highs as dealers shifted out of safe assets, resumed its upward trajectory, surging more than 2 per cent Wednesday to US$1,415 per ounce.

Oil prices edged up slightly after data showed another drop in US stockpiles, but they were nowhere near biting into the more than 4 per cent falls suffered on Tuesday on demand fears.

The commodity has already had a volatile week, having surged on Monday on the back of the announcement by Russia and Saudi Arabia that they will extend their output caps. The move was confirmed by the two and other Opec members at the group's meeting on Tuesday.

"Growth concerns continue to weigh on the crude market and the markets are beginning to query to what extent can Opec+ continue to cut production in sustaining prices," Howie Lee, an economist at OCBC, told Bloomberg News.

"Production levels have already been severely reduced and there is limited scope for further supply curbs."

Key figures around 0720 GMT

Tokyo - Nikkei 225: down 0.5 per cent at 21,638.16 (close)

Hong Kong - Hang Seng: down 0.3 per cent at 28,802.79

Shanghai - Composite: down 0.9 per cent at 3,015.26 (close)

London - FTSE 100: up 0.2 per cent at 7,572.39

Euro/dollar: down at $1.1284 from US$1.1289 at 2130 GMT

Dollar/yen: down at 107.63 yen from 107.88

Pound/dollar: down at US$1.2568 from US$1.2593

West Texas Intermediate: up 27 US cents at US$56.52 per barrel

Brent North Sea crude: up 24 US cents at US$62.64 per barrel

New York - Dow: up 0.3 per cent at 26,786.68 (close)