Asia Stocks Slip, Bonds Rally on Fear China-U.S. Trade Deal Could Unravel

Asian equities tracked Wall Street’s slide on Wednesday, while investors switched to safe-haven government bonds, driven by fears that global growth will suffer as a potential trade deal between the United States and China appeared to be unraveling.

Beijing said on Tuesday that Chinese Vice Premier Liu He will visit Washington on Thursday and Friday for trade talks, setting up a last-ditch bid to salvage a deal that would avoid a sharp increase in tariffs on Chinese goods ordered by President Donald Trump.

In early European trade on Wednesday, pan-region Euro Stoxx 50 futures were down 0.09%, German DAX futures were up 0.05% and FTSE futures were down 0.03%.

MSCI’s broadest index of Asia-Pacific shares outside Japan , which earlier on Wednesday morning touched its lowest level since late March, was down 0.55%.

The index had climbed to a nine-month peak three weeks ago, buoyed by factors including strong Chinese economic data and views that Sino-U.S. trade negotiations were progressing and would end in a deal.

The Shanghai Composite Index retreated 0.1%. Australian stocks declined 0.4%, South Korea’s KOSPI fell 0.3% and Japan’s Nikkei was down 1.9%.

“The stock market had held an optimistic view towards U.S.-China trade, likely pricing in an end to negotiations. But the sudden resurgence in trade tensions has forced it to grapple with uncertainties, such as the risk of the talks taking an unforeseen turn,” wrote strategists at Goldman Sachs.

Wall Street stocks had slid on Tuesday, with the S&P 500 losing 1.65% and the Dow shedding 1.8% on the U.S.-China trade concerns.

Global stocks had a rocky start to the week after Washington on Monday accused Beijing of backtracking from commitments made during trade negotiations. That followed President Donald Trump’s unexpected statement on Sunday that he would raise tariffs on $200 billion worth of Chinese goods to 25% from 10%.

“From an equity market perspective, the immediate focus is on the two-day talks scheduled to take place between the U.S. and Chinese officials,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.

“However, it is difficult to imagine the two parties resolving their differences in just two days of talks. The markets may have to begin pricing in the trade conflict as a long-term factor once again.”

Government bond prices surged and their yields fell sharply as investor panic took a toll on growth asset markets.

Benchmark 10-year yields on U.S. Treasuries, German bunds and Japanese government bonds (JGBs) sank to one-month lows.

Japan’s 10-year yield burrowed deeper into negative territory and last stood at minus 0.055%.

In currency markets, the dollar declined for the fourth day and touched a six-week low of 109.905 yen.

The Japanese yen, a perceived safe-haven, often gains against its peers in times of market turmoil and political strife.

The euro was a little higher at $1.1204 after ending the previous day nearly flat, and having held in a tight range for the last few sessions.

The New Zealand dollar was down 0.2% at $0.6560 after the country’s central bank cut interest rates to a record low 1.5% from 1.75% on Wednesday amid weaker domestic activity and employment headwinds.

The kiwi had earlier dropped to $0.6525, its lowest since November 2018.

The Australian dollar edged up 0.2% to $0.7022 .

The Aussie was on the front foot after the Reserve Bank of Australia kept its policy interest rate unchanged at 1.5% on Tuesday, defying expectations for a cut.

U.S. West Texas Intermediate crude futures rose 0.78% to $61.88 per barrel, recovering some ground after sinking 1.36% on Tuesday.

Crude oil prices had dropped as renewed U.S.-China trade worries stoked concerns of slower global growth crimping demand for commodities. But a relatively tight market conditions due to U.S. sanctions on Iran and Venezuela has provided underlying support for oil prices.

Brent crude oil futures were up 0.54% percent at $70.26 per barrel, pulling back from a one-month trough of $68.79 brushed on Monday.