Asia Markets

Asia markets mixed ahead of this week's US-China trade talks

Key Points
  • Asia markets were mixed on Monday as investors awaited a fresh round of U.S.-China trade negotiations expected to begin later this week.
  • The outcome from this week's trade discussions "will likely be pivotal in determining if the two sides can reach an interim trade deal that postpones further tariff escalation," analysts at Eurasia Group wrote in a note last week.
  • They said there is a 40% probability to an interim deal, and a 60% chance that Trump at least postpones further tariff hikes.
  • Tariffs on $250 billion worth of Chinese goods are scheduled to rise to 30% on Oct. 15.

Asia markets were mixed on Monday as investors awaited a fresh round of U.S.-China trade negotiations expected to begin later this week.

Japan's Nikkei 225 closed 0.16% lower at 21,375.25. Shares of index heavyweight Fast Retailing, the company behind the Uniqlo chain of apparel stores, slipped 0.74%. The Topix index finished its trading day largely flat at 1,572.75.

South Korea's Kospi closed fractionally higher at 2,021.73, with shares of Hyundai Motor gaining 1.19%. In Australia, the S&P/ASX 200 advanced 0.71% to end its trading day at 6,563.60, as parts of the country were closed for the Labour Day holiday.

Overall, the MSCI Asia ex-Japan index rose 0.16%. Markets in Hong Kong and China were closed Monday for holidays.

Ahead of this week's trade talks between the world's two largest economies, there were reports that Chinese officials are growing hesitant to pursue a broad trade deal with the U.S.

US-China trade talks to resume

Principal-level trade negotiations between the United States and China are set to begin on Thursday in Washington. Trade tensions have risen recently after reports said U.S. President Donald Trump's administration is deliberating ways to limit American investors' portfolio flows into China, which includes delisting Chinese companies from U.S. stock exchanges.

The outcome from this week's trade discussions "will likely be pivotal in determining if the two sides can reach an interim trade deal that postpones further tariff escalation," analysts at Eurasia Group wrote in a note last week. They said there is a 40% probability to an interim deal, and a 60% chance that Trump at least postpones further tariff hikes.

Tariffs on $250 billion worth of Chinese goods are scheduled to rise to 30% on Oct. 15. Both countries have slapped tariffs on billions of dollars worth of each other's goods, which has roiled global markets, created uncertainty and dampened economic growth outlooks around the world.

"An interim deal at a minimum would include an agreement by Trump to delay further tariff increases and approve a subset of pending licenses for US suppliers to Huawei in exchange for China stepping up purchases of US agricultural products," the Eurasia Group analysts added.

Still, Javelin Wealth Management CEO Stephen Davies told CNBC's "Street Signs" on Monday: "I think people are getting a little bit shell-shocked by the fact that every time we seem to be getting close to one there's something else that ... causes discussions to be pulled back."

"I think it's now a question of waiting to see the detail and some actual movement rather than speculating on whether or not we're gonna get it," Davies said

US nonfarm payrolls

Markets in Asia had a muted reaction to the U.S. nonfarm payrolls data released last Friday.

Unemployment stateside touched a fresh 50-year low in September, though the nonfarm payrolls rose by 136,000 — below the 145,000 jobs economists had predicted in Dow Jones survey.

"The US labour data helped remove some of the gloom around the US economy, as the report suggested that recent manufacturing sector woes were not spreading into the broader economy just yet," Adelaide Timbrell from ANZ Research wrote in a Monday morning note.

"Instead, September's labour market data suggests that despite the softening suggested by business surveys, underlying economic momentum in the US remains strong," Timbrell added.

Expectations for a rate cut by the U.S. Federal Reserve have risen in recent days since last week's disappointing U.S. manufacturing data which showed a contraction in the sector.

"We are actually expecting two more Fed rate cuts by the end of this year," Rohit Garg, foreign exchange and rates strategist at Bank of America Merrill Lynch, told CNBC on Monday. "If the market pricing of rate cuts do increase, it will definitely have a negative impact on the dollar."

Market expectation for a rate cut by the Fed at its upcoming October meeting was last at about 80%, according to the CME Group's FedWatch tool.

Currencies and oil

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 98.860 after declining from levels above 99.6 last week.

The Japanese yen, often seen as a safe-haven currency in times of market turmoil, traded at 106.87 per dollar after strengthening from levels above 108 in the previous trading week. The Australian dollar changed hands at $0.6752 following a rise from levels below $0.669 last week.

Oil prices edged higher in the afternoon of Asian trading hours, with international benchmark Brent crude futures just above the flatline at $58.39 per barrel. U.S. crude futures also gained 0.11% to $52.87 per barrel.

— Reuters contributed to this report.