Asia gives brave face to Trump's threat, oil under control

SYDNEY: Asian stock markets fought on Tuesday to maintain a global rebound after US President Donald Trump seemed to dash hopes of a trade truce with China, darkening what had been a good start to the week.

Movements have generally been eased, but Japan's Nikkei has managed to add 0.8% and Chinese blue chips have risen 0.4%.

The MSCI's broadest share of Asia-Pacific shares outside Japan trended on both sides and was up 0.2%. E-Mini futures for the S & P 500 plunged 0.1% and spreadbetters showed a moderate start for the major European markets.

In an interview with The Wall Street Journal, Trump said he hoped to move forward by increasing tariffs on Chinese imports to the tune of 200 billion US dollars, pushing them up from 10 percent currently at 25%.

Trump said it was "very unlikely" that he would accept China's request to delay the increase, scheduled for Jan. 1.

The comments contradicted recent speculation about a possible deal when Trump will meet Chinese President Xi Jinping at the G20 summit in Buenos Aires later this week.

"Trump's pessimistic view of the odds of a decisive Chinese trade deal could break the optimistic beginning of global stock markets," said Sean Callow, senior analyst of foreign exchange operations at Westpac in Sydney.

"In combination with the hard report released last week by the US Trade Representative, investors have only the slightest hope that the Trump-Xi meeting in Argentina is more than a soya hill."

This put the trade-sensitive currencies, including the Australian dollar, on the defensive, while the dollar lost ground on the yen hut to 113.46.

The euro rose slightly to settle at 1.334 USD and the dollar plunged to 97.027 against a basket of currencies.

OIL CHANGES RISKS OF INFLUENCE, EDF

Apple Inc. shares fell after hours in response to Trump's claims that tariffs could also be applied to laptops and iPhones imported from China.

Trump's remarks came just as the investor mood had shown signs of enlightenment and that Wall Street had been inspired by the holiday shopping period.

The Dow ended Monday up 1.46%, while the S & P 500 gained 1.55% and the Nasdaq 2.06%.

This recovery came after the S & P 500 recorded its lowest close in six months on Friday, down more than 10% from the September highs and a return to "correction" territory.

In commodity markets, oil prices reached record levels in Saudi Arabia. Oil climbed nearly 3% Monday, but it was a technical correction after weeks of heavy losses, caused by both oversupply and demand fears.

US crude lost 9 cents to 51.54 dollars a barrel, while Brent futures rose 3 cents to 60.51 dollars.

Analysts at the National Australia Bank have noted that the 30% drop in oil since early October would dampen US inflation in the coming months, providing another reason for the Federal Reserve to slow down its tightening.

"It's a totally different picture just a few months ago," said Tapas Strickland, NAB's strategist for the markets.

"Stable or declining inflation prospects mean that there is no urgency for the Fed to raise rates," he added. "A break in early 2019 therefore becomes more likely."

The futures market has already evolved to involve two new hikes at most next year, while the Fed itself expects three more in 2020.

The vice-president of the Fed, Richard Clarida, will therefore be screwed up on Tuesday, before the appearance of President Jerome Powell the next day.

(Report by Wayne Cole, edited by Richard Borsuk & Shri Navaratnam)