Asia: Stocks choppy as trade war fears dominate markets

[HONG KONG] Asian markets were jittery Friday as a modest rebound in US equities failed to ease fears over the US-China trade war and its impact on the world economy.

Fears of a global recession and a drawn-out trade spat between the world's top two economies saw the Dow suffer its worst one-day fall on Wednesday.

Although US stocks recovered slightly on Thursday, reassured by strong US retail sales and Walmart earnings, investors remained anxious, seeking out safe havens in the form of Treasury assets and gold, which continued to hover above the US$1,500 level.

The yield on the 10-year US Treasury bond slid Wednesday below the yield on the two-year note, meaning the short-term interest rates were higher than the longer-term rates.

The so-called "inversion" phenomenon has been a reliable harbinger of recession for decades since it suggests that markets have a negative long-term outlook.

On Thursday the yield on the 30-year bond hit an all-time low, while the 10-year note plunged to its lowest level in three years before staging a tepid recovery.

"Better-than-expected US data probably helped sentiment in US stock markets, though it seems to have been largely ignored by the bond market," said Stephen Innes, managing partner at VM Markets.

In Asia, markets struggled to eke out marginal gains. Hong Kong rose 0.4 per cent while Shanghai was up 0.5 per cent. Tokyo edged up 0.1 per cent. But Singapore and Seoul shed 0.8 per cent.

'ULTIMATE RETALIATION'

Economists have warned for months that trade tensions would drag down sentiment, which was already suffering due to China's economic slowdown and fears of Brexit's impact on Britain and Europe.

The tensions have already hit global demand, with data this week showing China's industrial output had plummeted to a 17-year low.

"There remains no end in sight" to the trade frictions, Tapas Strickland, senior analyst at National Australia Bank, said in a commentary.

"It is clear that China is willing to play the long game, meaning that to de-escalate tensions, any compromise will have to come from the US side," he said, citing an editorial from China's state-controlled media The Global Times.

But with US rhetoric showing few signs of softening, investors are not holding their breath for a speedy resolution.

After markets closed Thursday, US President Donald Trump said trade negotiations set for September were "still on", less than a week after suggesting they might be cancelled.

"We're talking and they're offering things that are very good," he said, before following it up with a warning that Washington could respond to any moves from Beijing with "the ultimate form of retaliation".

AFP