HONG KONG (AFP, BLOOMBERG) - Asian markets largely extended their losses on Wednesday (Aug 7) despite Wall Street registering strong gains as investors remained on edge over escalating US-China trade tensions.
Asia’s losses came despite a gain of more than one percent for US indices as Wall Street recovered from a multi-session losing streak that saw the Dow hit its lowest level this year.
Equities had tumbled on Monday after Beijing allowed the yuan to slide sharply against the dollar following US President Donald Trump’s announcement that he would impose 10 percent tariffs on another US$300 billion in Chinese goods starting Sept 1.
On Wednesday morning, China’s central bank set its daily currency reference rate marginally stronger than 7 a dollar, leaving analysts anticipating Thursday’s fixing as a key policy signal.
The Wednesday level of 6.9996 gives the People’s Bank of China little headroom if it wants to track the spot rate lower while staying on the strong side of 7. The yuan dropped 0.3 per cent to 7.0486 a dollar.
“Investors may be concerned that the fixing may break 7 in the future, which will be seen as a sign that room for depreciation remains large,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp. “The fixing in the coming days will send very important signals on the central bank’s stance.”
Edward Moya, senior market analyst at OANDA, warned that “trade war concerns remain very much front of mind.... at this point more details and statements from both sides are needed to inject calm into a volatile market”.
Hong Kong fell 0.7 per cent despite inching up at the open, while Tokyo shed 0.8 per cent amid safe-haven purchasing of the yen.
A strong yen clouds the outlook for Japanese exporters as it reduces their profits when they are repatriated.
Shanghai also dropped 0.2 per cent. But other emerging markets saw gains, with Jakarta and Manila climbing around one percent.
US-China trade tensions have risen sharply since last week following Trump’s latest tariffs announcement, which would subject virtually all of the US$660 billion in goods traded between the world’s two top economies to punitive duties.
The yuan’s slump fuelled speculation that Beijing was devaluing the currency to support exporters and offset the tariffs threat, infuriating Washington.
Multiple rounds of tit-for-tat tariffs between the two countries have already battered trade and raised fears for the health of the global economy.
Chinese and US negotiators are set to reconvene in Washington in early September for another round of talks after last week’s discussions in Shanghai, but expectations of a deal are low.