Optimism Has Its Limits as Trade Worries Resurface

(Bloomberg) -- Asian stocks are stumbling to the finish line Friday, paring an otherwise solid week of gains.

Investor anxiety is once again rising as the latest round of trade talks in Beijing looks set to wrap up without a pat resolution. In a series of meetings this week, the two sides have failed to narrow the gap around structural reforms to China’s economy, and it would likely take a meeting between President Donald Trump and his counterpart Xi Jinping to seal a deal, according to U.S. and Chinese officials familiar with the discussions.

As a result, the MSCI Asia Pacific Index erased more than half of its weekly gain Friday, with most markets in the region trading in the red as Hong Kong, China, South Korea and Japan sank. The longer the U.S.-China talks drag on, the more doubt creeps back in among Asia investors after shares in the region rallied some 10 percent from a December low.

“It’s unlikely China will change course in three months,” Nader Naeimi, head of dynamic markets with AMP Capital Investors Ltd., said in an interview with Bloomberg Television. “As long as there is no clarity and closure, uncertainty will remain and economic data will likely to feel the pressure.”

That’s certainly true for both sides, as figures overnight showed U.S. retail sales unexpectedly fell the most in nine years in December, while the latest reading for China’s factory prices Friday showed a seventh straight month of deceleration. Bloomberg Intelligence economists slashed their U.S. 2018 growth estimate to 3 percent from 3.2 percent after the surprise retail result.

Yet investors haven’t thrown in the towel just yet. Keep in mind the MSCI Asia Pacific Index is still heading for a fifth weekly gain out of six, and its 30-day volatility is at its lowest level since August. The gauge has managed to hold above its 100-day moving average since Jan. 25, a decent stretch after repeatedly failing to keep that level in the past year.

Optimism Has Its Limits as Trade Worries Resurface

“There has been a shift in the early weeks of 2019 in what investors are pricing in as the best-case scenario for U.S.-China trade talks,” Hannah Anderson, global market strategist with JPMorgan Asset Management, said in a note to clients Friday. Expectations for a comprehensive agreement have been scaled back to more modest hopes the U.S. won’t raise or apply more tariffs, which reflects “how eager markets, fatigued after a year of trade headlines, are to move trade issues to the back burner.”

The ongoing earnings season may help divert the attention of investors. In Asia, HSBC Holdings Plc and Hang Seng Bank Ltd. will take center stage next week, while Walmart Inc. and Hewlett Packard Enterprise Co. headline earnings in the U.S.

See what else is coming next week here.

Stock-Market Summary

  • MSCI Asia Pacific Index down 0.9%
  • Japan’s Topix index down 0.8%; Nikkei 225 down 1.1%
  • Hong Kong’s Hang Seng Index down 1.9%; Hang Seng China Enterprises down 2.1%; Shanghai Composite down 1.4%; CSI 300 down 1.9%
  • Taiwan’s Taiex index down 0.2%
  • South Korea’s Kospi index down 1.3%; Kospi 200 down 1.6%
  • Australia’s S&P/ASX 200 up 0.1%; New Zealand’s S&P/NZX 50 down 0.4%
  • India’s S&P BSE Sensex Index down 0.6%; NSE Nifty 50 down 0.7%
  • Singapore’s Straits Times Index down 0.4%; Malaysia’s KLCI little changed; Philippine Stock Exchange Index down 1%; Jakarta Composite down 0.5%; Thailand’s SET down 0.8%; Vietnam’s VN Index down 0.2%
  • S&P 500 e-mini futures down 0.3% after index closed down 0.3% in last session

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