Asian markets mostly fell yesterday with nervous investors keeping tabs on developments in China-US trade talks and the Brexit saga, while awaiting the conclusion of a key Federal Reserve meeting.
General optimism about the outlook for the tariffs negotiations has helped propel equities higher across the world this year — offsetting concerns about the outlook for the global economy – with both Washington and Beijing sounding broadly positive.
But dealers have been spooked by a report that some US officials are feeling some pushback from China on a number of demands, including on the crucial issue of intellectual property.
The unnamed negotiators said the Chinese side was growing concerned at the lack of assurances that US duties would be removed, according to the Bloomberg story.
While the report also said the resistance was regarded by some as a normal part of talks, it highlighted their fragile nature, with fears already raised earlier this month by the delay of a flagged signing summit between President Donald Trump and his Chinese counterpart Xi Jinping.
US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will return to Beijing next week to resume talks.
Hong Kong dropped 0.5% at 29,320.97 after a four-day rally, while Shanghai closed marginally down at 3,090.64. Sydney fell 0.3%, Singapore was off 0.4% and Seoul flat.
However, Tokyo recovered from an early sell-off to end 0.2% higher at 21,608.92, while Taipei, Manila and Jakarta also rose.
Adding to unease on trading floors is continued uncertainty surrounding Britain’s drawn-out departure from the European Union. Prime Minister Theresa May is expected to ask the bloc for an extension of the March 29 deadline for leaving, having seen her exit proposals killed off by MPs.
However, EU top negotiator Michel Barnier said any delay would have “political and economic costs” for the bloc’s remaining 27 states.
“A long extension... should be linked to something new, a new element or new political process,” he told reporters, while reports said May could be considering another general election or even a second referendum. Observers expect the exit date to be put back but there is a concern that it could be rejected, leaving Britain to crash out of the EU without a deal, which many warn could be devastating for the economy.
European Commission President Jean-Claude Juncker said yesterday it was unlikely leaders would reach a decision on Brexit at this week’s summit in Brussels.
Despite the turmoil, the pound continues to hold its own against the dollar, with a long extension considered positive for the unit, though observers remain on edge.
“For now, the pound appears to be reflecting the optimism of the market that common sense will prevail.
However... that is a big assumption given the current febrile political atmosphere,” said Michael Hewson, chief market analyst at CMC Markets UK.
The Fed’s March policy meeting concludes later in the day, with analysts predicting it will announce a slower pace of interest rate hikes – to one from the two previously tipped – as the economy shows signs of softening.
Bank boss Jerome Powell’s post-meeting comments will be pored over for some forward guidance.
But OANDA senior market analyst Alfonso Esparza warned: “A more-dovish-than-expected (statement) could spook investors and see them headed for safe havens if growth expectations are low at the same time as uncertainty on Brexit and the US-China trade deal are on the rise.”
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