US stock futures slide as trade war escalates

[SYDNEY] US stock futures slumped and the yen climbed after trade talks ended without a resolution at the end of last week and China said the US must remove all extra tariffs. The yuan retreated.

The heightened tensions over the weekend threaten to unwind gains in risk assets from late Friday as optimism over progress between the two sides fades. S&P 500 Index futures opened 1.1 per cent lower.

The Australian dollar slipped in early trading, though moves across currency markets were relatively small, compared to a week ago when US President Donald Trump first tweeted new tariffs were coming. Hong Kong is closed Monday for a holiday.

"The biggest problem is the huge disconnect with what markets have been hoping for and what is transpiring now," said Nader Naeimi, a fund manager at AMP Capital Investors in Sydney. "Markets had priced the best-case scenario and odds are shifting towards the worst-case scenario."

Traders are on tenterhooks, digesting a slew of details from the weekend that moved the bid in markets in favour of safer-haven assets that could mean more volatility as the week progresses.

Stocks in China were especially hard hit last week as the US increased levies on about US$200 billion worth of Chinese goods, though state funds buying equities to ease the turmoil helped push shares in Shanghai up more than 3 per cent. Mr Trump said Saturday it would be wise for China to "act now" to complete a trade deal with the US.

Larry Kudlow, Mr Trump's top economic adviser, told Fox that China invited trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin back to Beijing, though no date has been set. He also said Mr Trump would meet with Chinese President Xi Jinping during the G20 meeting in late June.

China said the US should take full responsibility for the setbacks because it raised tariffs on the country's products, according to an article due to be published Monday in the People's Daily, the flagship newspaper of China's Communist Party, according to state television.

Here are some notable events coming up this week:

- Earnings this week include Alibaba, Tencent, Cisco, Nvidia, Vodafone

- Japan balance of payments is due Tuesday

- China industrial production and retail sales are slated for Wednesday, same day as US retail sales and industrial production

- Bank of Indonesia has an interest rate decision on Thursday. It has kept rates on hold this year after six hikes last year and economists are projecting it will join Asia's shift to dovish monetary policy

- Australian unemployment is out on Thursday

- A slew of Federal Reserve policy makers speak: Boston Fed President Eric Rosengren and Fed vice-chairman Richard Clarida speak at a "Fed Listens" event hosted by the Boston Fed. New York Fed President John Williams speaks at an event in Zurich. Kansas City Fed President Esther George and Richmond Fed President Thomas Barkin also make appearances

- US Secretary of State Michael Pompeo travels to Russia where he'll meet with his counterpart Sergei Lavrov

Stocks

Futures on the S&P 500 Index fell 0.7 per cent as of 7.04am in Tokyo. The underlying gauge rose 0.4 per cent Friday.

Futures on Japan's Nikkei 225 gained 0.9 per cent late Friday, prior to the bulk of the weekend's developments.

Currencies

The yen rose 0.2 per cent to 109.79 per US dollar.

The offshore yuan slid 0.2 per cent to 6.8555 per US dollar.

The euro bought US$1.1235, little changed.

The Aussie lost 0.1 per cent to 69.93 US cents.

Bonds

The yield on 10-year Treasuries rose three basis points to 2.47 per cent Friday.

Commodities

West Texas Intermediate fell 0.1 per cent to US$61.66 a barrel.

Gold gained 0.2 per cent to US$1,286.05 an ounce.

BLOOMBERG