Asian markets stutter after rally, Hong Kong brushes off protests

Hong Kong stocks rallied more than one percent as investors focused on the China-US trade talks instead of historic violent protests that hit the city over night. (Photo: AFP/Anthony Wallace)

Hong Kong stocks rallied more than two per cent as dealers returned from a long weekend to play catch-up with the rest of the region, with overnight violent protests in the city appearing to have had little effect on sentiment.

While Donald Trump and Xi Jinping's agreement to kick-start negotiations provided some much-needed relief - and sent the S&P 500 to a new record on Wall Street - key questions remained unresolved, including on tech trade and intellectual property.

"Traders found themselves running too far ahead of the economic realities after a swathe of disappointing manufacturing reports from the US, China and Europe provided a not-too-subtle reminder that the outlook for global growth remains quite harmful to risk sentiment," said Stephen Innes at Vanguard Markets.

The closely watched Institute for Supply Management's nationwide manufacturing index in the US fell to its lowest level in almost three years in June, hit by weak overseas demand with factories reluctant to produce stock they may not be able to sell.

Earlier, figures out of China and Europe pointed to contraction in their respective factory sectors, while Britain's index fell to its lowest since 2013.

EYES ON CENTRAL BANKS

Observers said the figures could put further pressure on central banks to provide support to economies with fresh stimulus.

The Federal Reserve is widely tipped to cut interest rates at its next policy meeting this month and the release of a US jobs report Friday will be closely followed as a weak reading could boost the case for a big reduction.

"Stocks may see the next catalysts stem from deteriorating economic data that will support the arguments for the Fed to deliver a stronger commitment to easing and for the other major central banks to step up their efforts," said OANDA senior market analyst Edward Moya.

Hong Kong was the biggest gainer, rising 1.2 per cent as the trade news overshadowed a night of historic violence that saw protesters storm the city's legislature before being dispersed by police.

The flare-up - on the 22nd anniversary of the handover to China - comes after weeks of massive demonstrations over a push to pass a bill that would allow extraditions to the mainland.

Innes added: "Unless this apparent one-off act of civil disobedience, turns into a much much longer affair it won't have any lasting economic impact. And while it is causing a few ripples, it won't trigger a tidal wave impact on markets."

Tokyo and Sydney each ended 0.1 per cent higher, Wellington was up 0.6 per cent and Manila added 0.3 per cent.

But Shanghai was marginally lower with Singapore off 0.2 per cent, Seoul shedding 0.4 per cent and Taipei down 0.3 per cent. Mumbai, Jakarta and Bangkok also slipped.

In early trade London rose 0.3 per cent, while Paris and Frankfurt were both up 0.1 per cent.

Both main oil contracts edged up but economic concerns and the possible impact on demand kept prices capped, having surged earlier Monday on the Trump-Xi agreement and news that Russia and Saudi Arabia had agreed to extend output cuts.

- Key figures around 0810 GMT -

Tokyo - Nikkei 225: UP 0.1 per cent at 21,754.27 (close)

Hong Kong - Hang Seng: UP 1.2 per cent at 28,875.56 (close)

Shanghai - Composite: FLAT at 3,043.94 (close)

London - FTSE 100: UP 0.3 per cent at 7,516.79

Euro/dollar: UP at US$1.1295 from US$1.1283 at 2050 GMT

Dollar/yen: DOWN at ¥108.32 from ¥108.44

Pound/dollar: DOWN at US$1.2626 from US$1.2637

West Texas Intermediate: UP three cents at US$59.12 per barrel

Brent North Sea crude: UP 29 cents at US$65.35 per barrel

New York - Dow: UP 0.4 per cent at 26,717.43 (close)