Asian shares recover from three-week lows but trade deal worries limit gains

People walk under an electronic board showing stock information at the Shanghai Stock Exchange in Lujiazui Financial Area before the visit of Britain's Chancellor of the Exchequer George Osborne in Shanghai, China-REUTERS 

Shanghai (Reuters): Asian equities posted a mild bounce on Friday from three-week lows hit the previous day, with persistent worries over the status of trade negotiations between China and the United States limiting the gains.

MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.12%, recovering from Thursday’s drop of as much as 1.4% that took it to its lowest level since Oct. 30 on concerns that US legislation on Hong Kong threatened to undermine trade talks between the world’s two largest economies.

Those concerns linger, with US President Donald Trump expected to sign into law two bills backing protesters in Hong Kong after the US House of Representatives voted 417 to 1 for the “Hong Kong Human Rights and Democracy Act”, which the Senate had passed unanimously a day earlier.

“If he’s going to be forced to sign it, then it brings another (element) of uncertainty to this phase one trade deal, which then pushes back into next year,” said Matt Simpson, senior market analyst at GAIN Capital in Singapore.

But Simpson said that in the absence of major news on trade, rangebound market moves are “quite reflective of the small headlines coming through”.

Chinese blue-chip shares, which had opened higher, turned negative later in the morning, and were last down 0.82%.

Australian shares gained 0.55% and Japan’s Nikkei was up 0.43%.

Worries that a “phase one” trade deal between the United States and China might not occur until next year had weighed on investor sentiment on Wall Street overnight, pulling the S&P 500 down 0.16% to 3,103.54, the Dow Jones down 0.2% to 27,766.29 and the Nasdaq Composite 0.24% lower to 8,506.21.

The losses, though, were tempered by China saying it was willing to work with the United States to resolve core trade concerns, and a report in the Wall Street Journal that China has invited top US trade negotiators for a new round of face-to-face talks in Beijing.

“I was ready to give up on a trade deal yesterday. But it seems the Chinese haven’t so I, we, mustn’t,” Greg McKenna, strategist at McKenna Macro, said in a note.

But analysts at ANZ said that whipsawing hopes over a deal were starting to wear on investors in the 16th month of the US-China trade war.

“It’s fair to say that some signs of trade-headline fatigue are emerging in markets,” they said in a note.

US Treasury yields were a shade higher.

The yield on benchmark 10-year Treasury notes was at 1.7774%, up from its US close of 1.772% on Thursday. The policy-sensitive two-year yield was at 1.6087% compared with a US close of 1.605%.

In currency markets, the yen was barely stronger, with the dollar buying 108.61. The euro was up 0.05% at $ 1.1063.

The dollar index, which tracks the greenback against a basket of six major rivals, was off 0.04% at 97.958.

Oil prices retreated after hitting two-month highs following a Reuters report that the Organization of Petroleum Exporting Countries and its allies are likely to extend existing output cuts until mid-2020.

US West Texas Intermediate crude dipped 0.68% to $ 58.18 a barrel and global benchmark Brent crude was down 0.58% at $ 63.60 per barrel.

Spot gold edged up 0.04% to $ 1,464.74 per ounce.