Asian shares struggle as US-China relations deteriorate

Asian stocks struggled to extend gains on Friday and were on course to end the week lower as deteriorating US-China relations undercut optimism over the reopening of major economies.

Worries about confrontations between the two largest economies in the world eclipsed Chinese economic data, which showed its economy was gradually recovering from the shock of the coronavirus outbreak.

With China the first to relax lockdowns, global investors are closely watching it for clues on how other countries might fare as they begin to ease their own anti-virus measures.

MSCI’s broadest index of Asia-Pacific shares outside Japan was little changed, with gains in Australia offset by falls in Hong Kong.

Japan’s Nikkei dipped 0.3 percent while mainland Chinese shares also edged lower.

In the US, S&P500 futures dipped 0.15 percent after the index gained 1.15 percent the previous day, recovering from a three-week low.

While many analysts regarded the drop as a natural correction after a rally since mid-March, they are also increasingly worried about US-China relations as US President Donald Trump blames China for the disease that has killed more than 85,000 Americans.

Trump signalled a further deterioration of his relationship with China over the novel coronavirus, saying he has no interest in speaking to President Xi Jinping right now.

He went so far as to suggest he could even cut ties with the world’s second-largest economy, a day after the US federal pension fund delayed investment in Chinese shares amid White House pressure.

“The US-China trade war was the biggest theme for markets last year. It will be a big concern if the conflict escalates beyond trade,” said Takeo Kamai, head of execution at CLSA.

Encouraging Chinese data

China’s industrial output rose 3.9 percent in April from a year earlier, exceeding expectations for a 1.5 percent rise and expanding for the first time this year as the world’s second-largest economy slowly emerges from its coronavirus lockdown.

But retail sales remained weak as unemployment rose.

“On the whole, the Chinese economy is improving and the industrial output figures suggest the GDP could be positive in April-June,” said Wang Shenshen, senior strategist at Mizuho Securities.

“But concerns about the US-China relations are weighing on markets.”

In the currency market, the dollar steadied near a three-week high as Sino-American tensions and worries about a second wave of coronavirus infections rattled investors.

In Asia, major currencies were little changed with the euro changing hands at $1.0806 and the yen at 107.19 to the dollar.

Oil prices were mixed after big gains a day earlier when the International Energy Agency (IEA) predicted crude stockpiles would start to shrink in second-half 2020 after surging while the coronavirus pandemic slashed fuel demand.

US crude futures traded 0.4 percent higher at $27.67 a barrel.