Asian shares retreat as virus and Sino-US tensions flare

Asian stock markets slipped on Tuesday, oil sagged and a safety bid supported the dollar as simmering Sino-US 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 per cent. Japan's Nikkei retreated from a one-month high touched on Monday, dropping 0.9 per cent, 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 per cent in Asia and the FTSE futures 1.5 per cent, while S&P 500 futures were flat after the index lost 0.9 per cent on Monday.

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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 US-listed Chinese firms, as friction between the world’s two largest economies generates heat on a broad front.

China's Shanghai index fell 1.13 per cent 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.

Oil prices, a proxy for global energy consumption and therefore growth expectations, reflected the growing worries. US crude futures fell 2.4 per cent to $39.14 per barrel and Brent futures fell 2.1 per cent to $41.81 per barrel.

The pullback in risk assets remains modest but has, at least temporarily, knocked the wind from the frothiest sections of the markets.

The tech-heavy Nasdaq shed 2 per cent on Monday and shares of Tesla ended down 3 per cent, tapping the brakes on a rally that has boosted the electric car maker’s stock by more than 40 per cent in two weeks.

Economic data

Along with the virus, there are also signs of an interruption to the steady flow of better-than-expected economic data.

Currency markets hemmed the dollar in a tight range, with the kiwi stalling its grind higher at $0.6535 and the Aussie sat at $0.6945.

The euro hung on to overnight gains at $1.1343 though awaits German sentiment data for the next read on Europe’s recovery.

Focus then shifts to US earnings, with JP Morgan, Citigroup and Wells Fargo as well as Delta Air Lines due to report on Tuesday to a market already looking ahead to 2021 and beyond. – Reuters