Asia: Markets mixed after US rally, Brexit back to haunt pound

[HONG KONG] Asian markets were mixed on Friday as another rally on Wall Street and data indicating a strong US economy were offset by the increasingly tense trade and technology stand-off between China and the United States.

The long-running Brexit saga also moved back into view, with the pound sinking to three-month lows on renewed concerns Britain will leave the EU with no deal as Prime Minister Theresa May tries to push her divorce deal through again.

New York's three main indexes rose for a third successive day on the back of better-than-expected housing construction data and a dip in US jobless claims, while solid earnings from Walmart and tech firms Cisco Systems and Nvidia reinforced optimism.

The figures provided a much-needed boost to sentiment after almost two weeks of extreme volatility sparked by Donald Trump's threat, and subsequent implementation, of higher tariffs on Chinese imports.

The move threw a spanner in the works for high-level talks between the superpowers that had seemed to be close to conclusion and led to a retaliation in kind from Beijing, fanning fears of an extended and painful trade war between the economic titans.

The row took a further twist Wednesday when Mr Trump barred Chinese telecoms firms - effectively taking aim at giant Huawei - from the US market and added it to a blacklist restricting US sales to the firm.

China hit out at the move and warned against further harming trade ties.

But in light of the Wall Street rally, Oanda senior market analyst Jeffrey Halley said investors seem "to have temporarily given up trying to predict the fluid situation that is US-China trade relations and concentrate on the here and now".

"The here and now on Wall Street was strong US housing starts and sparkling results from heavyweights Walmart, Nvidia and Cisco Systems, suggesting yet again that despite the international noise, the US economy is still moving full steam ahead."

'NUCLEAR OPTION'

However, Rodrigo Catril at National Australia Bank said it was "hard to get too excited as the news flows on the trade front points to an escalation rather than an ease in tensions".

He pointed out that observers were suggesting the drive against Chinese telecoms companies "effectively means the president has taken the 'nuclear option' and it has now moved towards a 'fully fledged' tech war with China".

In early trade Hong Kong was down 0.4 per cent and Shanghai shed 0.9 per cent while Singapore dropped 0.5 per cent.

However, Tokyo went into the break 1.6 per cent higher, while Sydney rose one per cent, Seoul put on 0.4 per cent and Taipei added 0.2 per cent. Manila soared more than one per cent, while Wellington and Jakarta were also up.

On currency markets, the ongoing uncertainty among investors was reflected in a drop in high-yielding, riskier units, with the Chinese yuan weakening further to sit at lows not seen since November.

The pound was also feeling the pressure after Mrs May said she would set out her timetable for leaving office after her Brexit deal with the EU, which has already been rejected by parliament three times, goes to MPs early next month.

The premier has already said she will leave once she has delivered Brexit but with pressure building on her some observers suggest she could step down if the vote, as expected, fails again.

Investors sold sterling on worries that her likely defeat could lead to a hardline Brexiter taking her post and pushing for a hard exit, which most commentators warn would hammer the country's economy.

In a sign of things to come, arch-Brexiter Boris Johnson has said he will run for the PM's job once it is vacated.

"The chances of a feasible Brexit solution being achieved seem to be falling by the day, much like the government's chance of re-election - any light at the end of the tunnel being a train coming the other way," said Mr Halley.

AFP