Asian shares falter as U.S.-China trade war, recession worries weigh

By Andrew Galbraith

SHANGHAI (Reuters) – Asian shares fell on Monday morning, while gold prices held firm as investors worried a prolonged Sino-U.S. trade war could tip the world and U.S. economies into recession.

In early trade, MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.17%, after Wall Street broke a three-day winning streak to end lower on Friday.

Australian shares dipped about 0.1% while the South Korean market clawed back from early losses to rise 0.12%.

Markets in Japan and Singapore were closed for a holiday Monday.

U.S. shares finished lower on Friday after U.S. President Donald Trump said that Washington was continuing trade talks with Beijing, but that the U.S. was not going to make a deal for now.

Those comments helped to drive a late sell-off in a volatile session that saw the Dow Jones Industrial Average fall 0.34%, the S&P 500 lose 0.66% and the Nasdaq Composite drop 1%.

White House trade adviser Peter Navarro subsequently said that the United States was still planning to hold another round of trade talks with Chinese negotiators.

The uncertainty and lack of progress around the talks have kept financial markets on edge over recent months, with investors pulling out funds from riskier assets amid the slowdown in global growth and corporate profits.

Worries about the damaging effects of the trade war between the world’s two biggest economies were underscored by a warning from Goldman Sachs (NYSE:GS) of the rising risk of a U.S. recession, and that it no longer expects a trade deal before the 2020 U.S. presidential election.

Elsewhere, there was little positive news. Data last week showed the British economy unexpectedly shrank for the first time since 2012 in the second quarter, while German industrial production suffered its biggest annual decline in nine years. All of that raised global recession fears as the escalating Sino-U.S tariff war took a toll on trade and investment.

“Cross asset correlations and money flow continue to tell (us) that this funk in markets is a genuine result of fear and uncertainty from traders and investors,” said Greg McKenna, strategist at McKenna Macro.

A flight to perceived safe-haven assets helped to lift the price of gold above $1,500 last week for the first time since April 2013. After giving up some gains on Friday, the precious metal was higher on Monday, rising 0.18% to $1,499.52 per ounce. [GOL/]

In currency markets, sterling matched its January 17, 2017 low against the U.S. dollar, buying as little as $1.2015 in early Asian trade Monday before trimming losses. The British pound last bought $1.2028.

The UK currency came under pressure on Friday after the downbeat data on the British economy.

The dollar dropped 0.25% against the yen to 105.40, while the euro edged higher to $1.1203.

The dollar index, which tracks the greenback against a basket of six major rivals, was barely changed at 97.513.

Oil prices dipped, having risen sharply on Friday on a drop in European inventories and production cuts by the Organization of the Petroleum Exporting Countries.

U.S. crude was down 0.53% to $54.21 a barrel and global benchmark Brent crudeshed 0.51% to $58.23 per barrel.