Asian shares calm as Sino-U.S. tensions flare up

SYDNEY/HONG KONG (Reuters) – Asian stocks held tight ranges on Monday as worries over flaring tensions between the United States and China weighed on sentiment, although signs of a recovery in industrial activity in the world’s second-largest economy capped losses.

European markets were set to open in positive territory, with EUROSTOXX 50 STXEc1 futures up 0.77% and FTSE FFIc1 futures up 0.71%, while E-mini futures for the S&P 500 index ESc1 climbed 0.19%.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS see-sawed between red and green, staying below a 6-1/2 month peak touched last week. Japanese and Singaporean markets were closed for public holidays.

Investors were circumspect after U.S. President Donald Trump signed two executive orders banning WeChat, owned by Chinese tech giant Tencent (0700.HK), and TikTok in 45 days’ time while announcing sanctions on 11 Chinese and Hong Kong officials.

Rounding out the actions, U.S. regulators recommended that overseas firms listed on American exchanges be subject to U.S. public audit reviews from 2022.

“The bigger question for markets is whether these actions jeopardise the U.S.-China trade talks on August 15 and markets will be looking closely for any Chinese retaliation,” said Tapas Strickland, director of markets & economics at National Australia Bank.

“The running assumption in markets has been President Trump needed the phase one deal to succeed, as much as China, this side of the November elections… At the same time President Trump is running a hard China line into the elections,” Strickland added.

China’s blue-chip CSI300 .CSI300 was down a shade and Hong Kong’s Hang Seng index .HSI fell 0.36% after the arrest of a high profile Hong Kong media tycoon under a new national security law.

While deteriorating Sino-U.S. relations hung heavy on sentiment, data showing a slowing in China’s factory deflation boosted hopes of economic recovery in the world’s second biggest economy.

China’s industrial output is steadily returning to levels seen before the pandemic paralysed huge swathes of the economy, as pent-up demand, government stimulus and surprisingly resilient exports propel a recovery.

Australian shares bucked the trend to rise 1.68% while South Korea’s KOSPI index .KS11 jumped 1.38%. New Zealand’s benchmark index advanced 0.3%.

In currencies, the dollar JPY= fell against the safe haven Japanese yen to 105.79 while the risk sensitive Aussie dollar AUD=D3 nursed its losses after falling 1.1% on Friday. [FRX]

The British pound GBP= rose slightly to $1.3073 but was still below a five-month high of $1.3185 touched last week. The euro was largely flat at $1.1789, after hitting its highest level since May 2018 last week.

That left the dollar index =USD at 93.35, having struggled on a slippery slope since late June.

Weighing on the greenback is uncertainty over U.S. fiscal stimulus after President Trump signed a series of executive orders to extend unemployment benefits after talks with Congress broke down.

The orders would provide an extra $400 per week in unemployment payments, less than the $600 per week passed earlier in the crisis.

While analysts see the move as a cut to spending that leaves homeowners and renters vulnerable to eviction, they are still optimistic about the prospects for more stimulus.

“I view this as another step in negotiations rather than a cessation of negotiations, with a still unknown timeline,” JPMorgan analyst Andrew Tyler wrote in a note.

“If we see the White House take the view that they no longer want to negotiate until after the election, then think we’ll see a wave of GDP downgrades followed by lower realized spending and spikes to unemployment in September through year-end.”

In commodities, gold XAU= slid slightly to $2,029.20 an ounce after hitting an all-time high of $2,072.5 last week.

Oil prices were higher with Brent crude LCOc1 rising 43 cents to $44.83 a barrel. U.S. crude CLc1 added 54 cents to $41.76.

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