Asian stocks slip on worsening US-China tensions

Asian shares slipped on Thursday as investors’ worries over rising tensions between Washington and Beijing overcame hopes for more economic stimulus, after the United States ordered the closure of China’s consulate in Houston amid accusations of spying.

China said the order was an “unprecedented escalation” by Washington, and a source told the Reuters news agency that Beijing was considering shutting the US consulate in Wuhan in retaliation.

US President Donald Trump said other consulate closures were “always possible”.

After ticking higher earlier in the morning session, MSCI’s broadest index of Asian shares excluding Japan was last down 0.3 percent, weighed down by slumping Chinese stocks. The Shanghai benchmark dropped 1.67 percent following four days of gains.

Australian shares were flat and Hong Kong’s Hang Seng index reversed earlier gains to lose 0.08 percent.

Nikkei futures shed 0.13 percent to 22,755, with Japanese markets closed for a holiday.

US S&P mini-futures slipped 0.08 percent in Asian trading.

Further escalation of China-US tensions was increasingly likely, said Kay Van-Petersen, global macro strategist at Saxo Capital Markets in Singapore.

Phase One risk

“The biggest near-term risk to me … is Trump going further and breaking on the Phase One [trade] deal,” he said.

But he said unprecedented stimulus measures to boost pandemic-battered economies would continue to provide structural support for riskier assets.

“The forces of liquidity are just unparalleled … we’re seeing what happened post the [Global Financial Crisis of 2008-09], but we’re seeing it on steroids,” he said.

“It’s rare that you see both monetary and fiscal policy turned on, and then when they are, they only turn on for a little bit.”

Hopes for another round of US stimulus and strong corporate earnings boosted Wall Street overnight even as Republicans and Democrats remain far apart on how much to spend on the next round of coronavirus relief.

The Dow Jones Industrial Average rose 0.62 percent, the S&P 500 gained 0.57 percent and the Nasdaq Composite added 0.24 percent.

In commodity markets, spot gold fell 0.3 percent to $1,865.84 per ounce, but remained near a nine-year peak on Thursday, with prices up nearly 23 percent on the year. Investors have flocked to the safe-haven metal as they seek shelter from a potential reversal in US equities.

Gold has been helped by a weak US dollar, which remained in the doldrums near more than four-month lows on Thursday, easing 0.05 percent to 94.965. The greenback was almost flat against the yen at 107.14 and against the euro at $1.1568.

Oil was also little changed, with US crude trading at $41.90 a barrel and global benchmark Brent crude up one cent to $44.30 per barrel.