Trade hopes support China, sterling totters on Brexit turmoil
Chinese shares rose on Tuesday after Beijing confirmed it was still in trade talks with Washington, but investor confidence remained fragile in Asia after Britain’s prime minister postponed a Brexit vote, sending the pound to near 20-month lows.
Despite deepening political uncertainty in Britain, spreadbetters expected a positive start for Europe with FTSE futures seen rising 0.7pc. But e-minis for the S&P500 and Dow futures were both down 0.3pc.
“The global growth drivers that produced the regional upturn have started to fade,” S&P Global Ratings said in a note as it lowered forecasts for almost every country in the Asia-Pacific.
“We continue to see mainly downside risks to our Asia-Pacific growth forecasts,” it added. “Global trade and investment friction remain top of mind for Asia. If friction escalates, the key casualty would be manufacturing investment.”
Disappointing data from major economies including China and Japan have fanned worries about corporate earnings and factory output, with the Sino-US trade battle clouding the outlook for world growth.
These uncertainties have put the brakes on equities this year, with MSCI’s broadest index of Asia-Pacific shares outside Japan skidding more than 16pc after surging 33.5pc in 2017.
The MSCI ex-Japan index reversed earlier losses but was still near a three-week trough touched on Monday.
Japan’s Nikkei slipped 0.3pc, while Hong Kong’s Hang Seng index was off 0.1pc.
India’s NSE share index tumbled in early trade after the shock resignation of the country’s central bank governor late on Monday, but the benchmark later pared losses and inched into positive territory.
Traders in India are now cautiously awaiting results from crucial state elections due later in the day. Some exit poll suggested Prime Minister Narendra Modi may be facing his biggest defeat since he took office in 2014, and months ahead of a general election.
Chinese shares inched up on news that the country’s Vice Premier Liu He had spoken with US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer, exchanging views on pushing forward the next stage of trade talks.
Chinese equities opened in the positive territory and the blue-chip index was last up 0.1pc. Australian shares gained 0.4pc while the Aussie dollar bounced too.
Yet the gains were tentative as markets fretted over the prospects for a lasting resolution to a trade dispute that has turned increasingly bitter in the past several months.
“We expect concerns over growth to dominate in 2019,” a BofA Merrill Lynch Global Research report said.
“The evolution of the US-China trade conflict and a sharp slowdown in China presents the biggest risk to our outlook for ASEAN.”
“A faster de-escalation could help cushion the slowdown but is unlikely to reinvigorate the economic cycle which has matured.”
Adding to the gloom in markets, British Prime Minister Theresa May abruptly postponed a parliamentary vote on her Brexit agreement on Monday, a move that hit risk assets globally and sent the pound spiralling down to $1.2505.
Sterling slumped below important chart support around $1.26.
With the European Union refusing to renegotiate the deal, lawmakers doubted her chances of winning big changes. May’s abrupt decision opened up a range of possibilities from a Brexit without a deal, a last-minute agreement or another referendum on EU membership.
The currency was last at $1.2571, up 0.1pc.
The dollar fell on the yen to 113.14. Its index against a basket of major currencies slipped 0.1pc to 97.078.
The greenback has jumped 5.5pc so far this year on safe-haven demand and as the US Federal Reserve stayed on its gradual policy tightening path.
However, uncertainties over how much further the Fed will tighten have turned bullish dollar bets sour lately.
In commodities, oil prices were nursing steep losses from the previous session.
US crude futures were flat at $51 per barrel. Brent added 2 cents to $59.99.