Asia markets reverse gains as trade war fears persist

HONG KONG — Asian markets largely reversed early gains Friday from a bargain-hunting push as investors remained cautious over the intensifying US-China trade war.

Tokyo managed to hold on to its winnings as positive data helped drive the Nikkei up 0.4 percent, after figures showed the world's third-biggest economy was growing faster than analysts had predicted.

The data showed Japan's gross domestic product grew 0.4 percent from the previous quarter on robust consumer demand, beating analysts' median forecast of 0.1 percent.

"The reading of the data itself was not a huge buying peg... but nonetheless it confirmed personal spending could pick up," said Makoto Sengoku, market analyst at the Tokai Tokyo Research Institute.

Shanghai shed 0.7 percent on news of the United States banning Huawei and other Chinese firms from government contracts, and weak economic data showing sluggish demand.

Hong Kong lost 0.7 percent as did Manila. Singapore and Bangkok were also down, but Sydney edged up 0.3 percent and Seoul climbed 0.9 percent. 

European markets, which had advanced on bargain-hunting by investors after several days of losses, fell in early trade, with London down 0.3 percent. Frankfurt dropped 0.5 percent and Paris slid 0.4 percent.

Safe-haven assets such as bonds, gold and the yen remained in demand, signalling that trade war fears were continuing to weigh on markets.

Interest rate cuts by central banks in India, Thailand and New Zealand this week underscored investor anxiety, with analysts saying markets believe further cuts are in the offing.

"The current market dynamics are such that the stabilisation of risk assets will remain a function of improvement on the trade front or the Fed turning increasingly more dovish," said Stephen Innes at VM Markets.

"With a near term trade agreement little more (than) wishful thinking at this stage the markets will lean on the dovish Fed narrative again as a critical circuit breaker to diffuse the markets' stress overload from escalating trade and currency war tensions."

Currency war worries

Equities were hammered Monday after Beijing allowed the yuan to slide sharply against the dollar following President Donald Trump's announcement of fresh tariffs on Chinese goods starting September 1.

But Beijing's push to stabilise the yuan helped to ease fears of a full-blown currency war on top of an escalating trade war.

That has done little to placate Trump, however, with Washington formally branding China a currency manipulator earlier in the week.

On Thursday, he appeared to call for a weaker US dollar to help American exporters -- a move that breaks with decades of US policy.

"As your President, one would think that I would be thrilled with our very strong dollar. I am not!" he said on Twitter.

"The Fed's high interest rate level, in comparison to other countries, is keeping the dollar high, making it more difficult for our great manufacturers... to compete on a level playing field."