Asian markets mixed as trade row rumbles, political crisis brews

HONG KONG — Asian markets were mixed Tuesday following the latest tit-for-tat tariffs in the China-US trade row, while investors are now looking ahead to the Federal Reserve's next policy meeting.

While the levies had been widely expected, there are concerns about how long the spat will go on for after China cancelled planned talks between the two sides and said negotiations "cannot be carried out under the threat of tariffs".

Fresh political uncertainty in Washington is also catching the attention, helping drag on Wall Street, with speculation Donald Trump could fire Deputy Attorney General Rod Rosenstein over reports he suggested removing the president from office.

The developments are being closely followed as Rosenstein plays a key role in overseeing the Russia probe by Special Counsel Robert Mueller, which Trump has labelled a politically motivated "witch hunt".

His removal could deal a major blow to the investigation and possibly a constitutional crisis in Washington, leading to further political instability.

In Asia Shanghai returned from a public holiday to fall 0.3 percent in the morning, Sydney shed 0.3 percent and Wellington lost 0.2 percent. Manila and Jakarta were also lower.

But Tokyo, also back after a public holiday, ended the morning 0.2 percent higher, Singapore added 0.4 percent and Taipei gained 0.2 percent.

Hong Kong and Seoul are closed for public holidays.

Focus on Fed

Energy firms enjoyed big gains following a surge in oil prices on Monday, which came after the world's top producers maintained output, despite pressure from Trump.

Brent soared more than three percent to a four-year high above $81 while WTI piled on 1.8 percent to hold around $72 after OPEC and non-OPEC nations said they were satisfied with the current market outlook.

"Oil continues to hold on to astonishing gains as the latest move was helped along by headlines from OPEC's weekend meeting as the organisation agreed to no immediate supply boosts and last week's reports that Saudi Arabia was now comfortable with Brent at $80," said Stephen Innes, head of Asia-Pacific trade at OANDA.

Focus is now on the Fed's policy meeting, which ties up on Wednesday with most bets on a third interest rate hike of the year. However, its statement will be pored over for its plans for future increases and whether its outlook has been altered by the ongoing trade war with China.

"Inflation is above target, so they can keep going on this sort of slow normalisation," Iain Stealey, portfolio manager at JPMorgan Global Strategic Bond Fund, told Bloomberg TV.

"I don't see them stopping unless we see a pickup in trade rhetoric which actually does impact the overall economy."

Expectations that borrowing costs will continue to rise through next year is providing strong support to the dollar, which is up against the yen, euro and pound as well as most other high-yielding currencies.