US Futures Fall, Asian Stocks Trim Gains on China: Markets Wrap

(Bloomberg) -- Asian equities trimmed their gains after Chinese shares opened lower as caution prevailed among investors with trade tensions rising between the world’s two largest economies.

Hong Kong equities fell while a gauge of Asian shares gave up some of its advance as China’s market reopened Wednesday after Lunar New Year holidays. Contracts for US and European equities lower after Google’s parent Alphabet Inc. and Advanced Micro Devices Inc. tumbled in extended trading. The yen gained against the dollar and gold rose to a record high on haven demand.

Investors are reducing risk as uncertainty remains high with Beijing’s swift retaliation to the US’s 10% tariff on imports from China. The first volleys in the latest US-China trade war made clear that Xi Jinping is taking a more cautious approach than during Donald Trump’s first term. 

“Trade relations between the US and China remain a risk, though if the 10% US tariff and China’s response measures were to be postponed, it will good for the market,” said Kenny Wen, head of investment strategy at KGI Asia Ltd. “On the other hand, the disputes may escalate again.”

Amid rising trade tensions, the US Postal Service said it was temporarily suspending inbound international packages from China and Hong Kong Posts. While it’s not clear what prompted the move, it comes after Trump revoked a “de minimis” rule for China, which previously allowed small packages under $800 to enter the US duty-free.

“There’s a more macro risk to the market now as all these seem to be an escalation of the trade war between the US and China,” said Nick Twidale, chief analyst at AT Global Markets.

Trump told reporters there’s no rush to talk to Xi and he’ll speak to the Chinese president at the appropriate time.

“The delay in US-China trade negotiations may drive some near term volatility for China markets,” said Marvin Chen, an analyst at Bloomberg Intelligence. “But Trump has shown that negotiations are possible.”

While China’s tit-for-tat response to US were seen by some investors as a measured response to avoid a full-blown standoff, others are concerned that the weaker-than-expected manufacturing activity data and yuan’s depreciation could weigh on Chinese stocks.

China’s services activity unexpectedly slowed while extending its monthslong growth streak, a private survey showed, as one of the country’s busiest spending seasons around the Lunar New Year supported demand.

China continued to support the yuan by setting the daily reference rate for the currency at a level stronger than 7.2 per dollar as a trade war with the US added to depreciation pressure on the yuan. 

Elsewhere, Japanese stocks reversed some losses, as shares of Toyota Motor Corp. extended gains after raising its annual operating profit outlook even though quarterly income fell short of estimates due to a downturn in global sales and production. The yen appreciated on expectations that Bank of Japan will continue with rate hikes, following strong domestic wage data and government comments on inflation. 

In commodities, oil edged lower as concerns that the trade war would hurt global growth outweighed the announcement of reinforced sanctions on Iran. Bullion reached an all-time peak above $2,854 an ounce.

Key events this week:

• Eurozone HCOB Services PMI, PPI, Wednesday
• US trade, Wednesday
• Fed’s Austan Goolsbee, Tom Barkin, Michelle Bowman, Philip Jefferson speak, Wednesday
• Eurozone retail sales, Thursday
• UK rate decision, Thursday
• US initial jobless claims, Thursday
• Fed’s Christopher Waller, Lorie Logan speak, Thursday
• Amazon earnings, Thursday
• US nonfarm payrolls, unemployment, University of Michigan consumer sentiment, Friday
• Fed’s Michelle Bowman, Adriana Kugler speak, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.4% as of 1:47 p.m. Tokyo time
• Japan’s Topix rose 0.1%
• Australia’s S&P/ASX 200 rose 0.6%
• Hong Kong’s Hang Seng fell 0.7%
• The Shanghai Composite fell 0.4%
• Euro Stoxx 50 futures fell 0.5%
• Nasdaq 100 futures fell 0.5%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0378
• The Japanese yen rose 0.7% to 153.27 per dollar
• The offshore yuan was little changed at 7.2906 per dollar
• The Australian dollar was little changed at $0.6248

Cryptocurrencies

• Bitcoin rose 1.8% to $98,267.07
• Ether rose 3.5% to $2,732.3

Bonds

• The yield on 10-year Treasuries was little changed at 4.50%
• Australia’s 10-year yield declined seven basis points to 4.35%

Commodities

• West Texas Intermediate crude fell 0.4% to $72.41 a barrel
• Spot gold rose 0.5% to $2,857.59 an ounce

This story was produced with the assistance of Bloomberg Automation.

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