Asian markets bounce back from Trump plunge

Asian markets have bounced after Monday's rout but investors remain cautious about trade talks between China and the United States after Donald Trump's tariffs threat. (File photo: AFP/JUAN MABROMATA)

Asian markets mostly rose on Tuesday (May 7), paring some of the previous day's painful losses as investors welcomed news China's top trade negotiator will lead a delegation to Washington this week despite Donald Trump's threat to hike tariffs.

Equities across the region were hammered Monday - led by Shanghai's worst losses in three years - after the president's warning fuelled by frustration at slow progress in the talks.

Trump's remarks shocked markets, coming just days after officials on both sides had sounded positive on the talks, with markets broadly expecting an agreement to be announced soon.

While some observers pointed out that such high-stakes moves are characteristic of Trump's negotiating style and that they expect a deal to be agreed anyway, OANDA senior market analyst Jeffrey Halley remained cautious.

"Say what you want about the US president ... but predictability and subtlety were never part of his election pledges," he said in a note. "China has most certainly found this out the hard way and likely explains why they are still sending their full delegation to this week's round of trade talks.

"I take much greater comfort in China's pragmatism than the president's Twitter account, but the markets should take a leaf from China's playbook and not assume the president was merely bluffing."

Asian markets started Tuesday on a healthy note as investors took their lead from Wall Street but the rally began to flag in the early afternoon before China confirmed that Vice Premier Liu He will be part of the talks team this week.

While Beijing had said they would send representatives, there were concerns Xi Jinping's point man might not attend.

Shanghai surged out of negative territory to end 0.7 per cent higher, having tanked more than five per cent Monday.

Hong Kong also reversed course to end up 0.5 per cent.

Elsewhere Sydney added 0.2 per cent, Singapore gained 0.7 per cent and Taipei put on 0.8 per cent, with Wellington, Manila and Mumbai also well up.

'REALITY SETTING IN'

But Tokyo fell 1.5 per cent as dealers returned after being off for six working days, while Seoul dropped 0.9 per cent following a long weekend.

There remains a certain amount of concern about the talks, however, following a warning from US Trade Representative Robert Lighthizer that there had been an "erosion in commitments by China" and that tariffs were still due to be hiked Friday.

There is a broad expectation some deal will eventually be reached but how extensive it will be is unknown.

"Reality is setting in that they are not going to get the master deal, the grand deal that they are hoping for and there's a lot of work to be done," said Oliver Pursche, chief market strategist at Bruderman Asset Management.

"We really think that there will be a deal; it will be a very mediocre deal but one that both sides can live with. Our best guess is that these tariffs will be implemented on Friday, but will then be reversed relatively quickly," he told Bloomberg TV.

The International Monetary Fund on Tuesday warned tensions between the economic superpowers were a "threat" to the world economy.

On currency markets, the yuan stabilised after being hammered Monday, though most other higher-yielding, riskier units managed to claw back some of their losses.

The Australian dollar rallied 0.7 per cent after the country's central bank held interest rates at a record low 1.5 per cent, brushing off calls for a cut as it said the economy was still in "reasonable" shape despite weak inflation and wage growth.

But the Reserve Bank of Australia signalled it could cut at upcoming meetings if the labour market does not improve.

In early trade London returned from a long weekend to dip 0.2 per cent down but Paris added 0.1 per cent and Frankfurt was up 0.2 per cent.

- Key figures around 0810 GMT -

Tokyo - Nikkei 225: DOWN 1.5 per cent at 21,923.72 (close)

Hong Kong - Hang Seng: UP 0.5 per cent at 29,363.02 (close)

Shanghai - Composite: UP 0.7 per cent at 2,926.39 (close)

London - FTSE 100: DOWN 0.2 per cent at 7,365.06

Euro/dollar: UP at US$1.1205 from US$1.1199 at 2050 GMT

Pound/dollar: UP at US$1.3100 from US$1.3097

Dollar/yen: DOWN at ¥110.64 from ¥110.87

Oil - West Texas Intermediate: DOWN 15 cents at US$62.10 per barrel

Oil - Brent Crude: DOWN 37 cents at US$70.87 per barrel

New York - Dow: DOWN 0.3 per cent at 26,438.48 (close)