Asian markets retreat as virus, US-China tensions flare up

SINGAPORE/WASHINGTON (Reuters) — Asian stock markets slipped on Tuesday, oil sagged and a safety bid supported the dollar as simmering US-China tensions and fresh coronavirus restrictions in California kept a lid on investor optimism as earnings season gets underway.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.2 percent. Japan’s Nikkei retreated from a one-month high touched on Monday, dropping 0.9 percent, while Chinese stocks were down despite better-than-expected trade numbers. A firm dollar put pressure on the Aussie and kiwi. The moves came after a selloff on Wall Street that followed reopening rollbacks in California, where Governor Gavin Newsom ordered bars closed and restaurants and movie theatres to cease indoor operations.

EUROSTOXX 50 futures were down 1.8 percent in Asia and the FTSE futures 1.5 percent, while S&P 500 futures were flat after the index lost 0.9 percent on Monday.

Meanwhile tension grew between the United States and China. The United States on Monday rejected China’s disputed claims to offshore resources in most of the South China Sea — a shift in tone which prompted a rebuke from Beijing.

The Trump Administration also plans on scrapping a 2013 auditing agreement that could foreshadow a broader crackdown on USlisted Chinese firms, as friction between the world’s two largest economies generates heat on a broad front.

“It’s not just the tempo which is picking up, but the aspect of so many areas being pulled in to the dispute,” said Vishnu Varathan, head of economics at Mizuho Bank in Singapore.

“Last time it was really about the bottom line,” he said, but now what had been primarily a trade dispute ranges across political and strategic dimensions, making a resolution less likely and the next moves less predictable.

China’s Shanghai index fell 1.13 percent despite official figures showing both Chinese exports and imports topped forecasts in June, while the Asian giant continued to buy significant amounts of commodities, including iron ore.

California’s return to restrictions also has markets on edge about whether the virus can wreak more economic harm, as total infections surged by a million in five days and now top 13 million.