SHANGHAI, Dec 4 2018 : Asian shares fell in early trade today as a relief rally sparked by a truce in the U.S.-China trade war gave way to doubts on whether the two countries are able to resolve their differences before a 90-day deadline.
MSCI’s broadest index of Asia-Pacific shares outside Japan edged down 0.2 percent as the Australian market gave up 0.5 percent and Seoul’s Kospi .KS11 fell 0.6 percent.
Japan’s Nikkei stock index .N225 was 0.3 percent lower.
The temporary freeze on further hostilities in the trade war between the United States and China had sparked a global rally in equity markets yesterday, pushing MSCI’s all-country world index up 1.3 percent. But even before the trading day ended, major U.S. indexes pulled back from intraday highs as investors pondered unresolved issues between the two countries.
Already there was confusion over when the 90-day period would start. A White House official said it started on Dec. 1. Earlier, White House economic adviser Larry Kudlow told reporters it would start on Jan. 1.
Moreover, none of the commitments that U.S. officials said had been given by China, including reducing its 40 percent tariffs on autos, were agreed to in writing and specifics had yet to be hammered out.
Adding to worries over the outlook for the global economy, the yield curve between U.S. three-year and five-year notes, and between two-year and five-year paper inverted yesterday – the first parts of the Treasury yield curve to invert since the financial crisis, excluding very short-dated debt.
Analysts expect an inversion of the two-year, 10-year yield curve – seen as a predictor of a U.S. recession – to follow suit.
“The fear across global markets is that this is just a short term relief rally and we will find ourselves back where we were a few weeks ago and staring down the barrel of a long term global growth slow down,” Nick Twidale, Sydney-based analyst at Rakuten Securities Australia said in a note.
“In the short term it seems we may find investors once again back to trading sentiment fluctuations as news hits the markets piecemeal on trade agreement progress.”
In contrast to the retreat in equity markets, oil prices continued to rise on Tuesday after surging 4 percent the day before on the U.S.-China trade truce, and ahead of a key OPEC meeting that is expected to lead to supply cuts.
U.S. crude was 0.5 percent higher at $53.23 per barrel. Brent crude futures settled at $61.69 a barrel yesterday.
Federal Reserve Chairman Jerome Powell was scheduled to testify tomorrow to a congressional Joint Economic Committee, but the hearing was postponed because of a national day of mourning for U.S. President George H.W. Bush, who died on Friday.
The dollar came under pressure last week on Powell’s comments that rates were nearing neutral levels, which markets widely interpreted as signaling a slowdown in the Fed’s rate-hike cycle.
Spot gold was flat, trading at $1,231.11 per ounce. – Reuters