Stocks skid as fresh trade barbs knock wind out of rally

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By Gregor Stuart Hunter

SINGAPORE (Reuters) -Asian stocks tumbled on Tuesday, dogged by growing doubts over whether China and the U.S. could strike a tariff deal when the world’s two largest economies meet later this month amid revived tensions over trade.

MSCI’s broadest index of Asia-Pacific shares outside Japan shed early gains to fall 1.2% as S&P 500 futures slid 0.6%. The Nikkei stock index fell as much as 3%.

“Both Washington and Beijing are posturing before the November summit – escalate to de-escalate,” said Marc Velan, head of investments at Lucerne Asset Management in Singapore. “Neither can afford a trade war heading into U.S. mid-terms.”

Markets had earlier joined the rebound from Monday’s cash session after U.S. Treasury Secretary Scott Bessent said President Donald Trump remains on track to meet Chinese leader Xi Jinping in South Korea in late October. But he added fuel to the fire in an interview in the Financial Times where he accused Beijing of trying to damage the global economy.

As negotiations between the U.S. and China intensify, the two nations will from today begin charging port fees on ocean shipping firms that move everything from holiday toys to crude oil.

Wall Street’s main indexes had ended as much as 2.2% higher on Monday, led by chipmakers, after Trump struck a more conciliatory tone on trade tensions with China, reversing some of the panic from Friday when Trump announced 100% tariffs on China.

Citi analysts said they do not expect an escalation of trade tensions between Beijing and Washington. 

“The reason is not so much the reassuring President Trump tweet over the weekend, but the fact that China may be the only country with bargaining power, where the U.S. may have to be more flexible in its negotiation stance,” Citi wrote.

But a spokesperson for China’s commerce ministry said on Tuesday the U.S. cannot seek talks while also making threats, keeping markets on edge over the chances for a broader trade deal.

Beijing announced sanctions on Tuesday against five U.S.-linked subsidiaries of South Korean shipbuilder Hanwha Ocean.

After early gains in Hong Kong, the Hang Seng Index fell 2%, while in the mainland, the CSI 300 gauge of blue-chip Chinese stocks slipped 1.3%.

Asian chipmakers veered sharply between gains and losses. TSMC clung to gains after OpenAI said it has partnered with Broadcom to produce its first in-house artificial intelligence processors.

South Korea’s Kospi index erased early gains, dragged by the broader selloff. The market had rallied at the start of the session, helped by Samsung Electronics’, which projected a better-than-expected 32% rise in third-quarter profit, although the tech giant lost 1.7% as the day progressed.

The yen strengthened 0.3% to 151.85 against the dollar after Japan’s finance minister warned the country needs a new economic strategy that deals with inflation, rather than deflation.

The yield on the U.S. 10-year Treasury bond was last 4.0187%, down 3.23 basis points compared with a previous close of 4.051%.

“Trump’s latest tariff threats are still seen primarily as a negotiation tactic, rather than policy reality,” analysts from Danske Bank wrote in a research report.

They noted any escalation in the trade war would only increase the likelihood of the Federal Reserve front-loading planned rate cuts.

Traders expect Fed easing later this month is a near-certainty. Pricing of Fed funds futures implies a 96.7% probability of a 25-basis-point cut to interest rates at the Fed meeting on October 29, compared with a 98.3% chance a day earlier, according to the CME Group’s FedWatch tool.

The euro was barely changed at $1.1584 after French President Emmanuel Macron rejected calls to resign on Monday, as his latest government was threatened by two no-confidence motions.

Brent crude was last down 0.4% at $63.06 per barrel after an OPEC report showed world oil supply is expected to closely match demand next year, a contrast from last month’s outlook, which projected a shortfall.

Gold slipped 0.2% to $4,104.39 per ounce, pausing for breath after setting a fresh record.

Bitcoin tumbled 3.1% to $112,235.34, while ether tanked 6.5% to $4,012.79.

(Reporting by Gregor Stuart Hunter; Editing by Lincoln Feast, Shri Navaratnam and Sam Holmes)