Asian shares give up gains as Hong Kong chaos hits sentiment

Asian shares reversed gains on Monday, the yen ticked higher and gold jumped as fresh violence broke out in Hong Kong, while uncertainty still remained over whether the United States and China could end their damaging trade war.

Hong Kong`s Hang Seng index led the losses in Asia, down more than 1%, after police fired live rounds at protestors on the eastern side of Hong Kong island. Reuters

Asian shares reversed gains on Monday, the yen ticked higher and gold jumped as fresh violence broke out in Hong Kong, while uncertainty still remained over whether the United States and China could end their damaging trade war. Hong Kong`s Hang Seng index led the losses in Asia, down more than 1%, after police fired live rounds at protestors on the eastern side of Hong Kong island. Cable TV and other Hong Kong media reported at least one protester being wounded. Video footage showed a protester lying in a pool of blood.

Chinese shares too started lower with the blue-chip CSI300 index down 0.6%. South Korea`s KOSPI lost 0.7%. Japan`s Nikkei gave up early gains to drift away from a recent 13-month high after data showed the country`s core machinery orders fell for a third straight month. Australian shares bucked the downbeat trend, rising 0.5% to a two-week high. That left MSCI`s broadest index of Asia-Pacific shares outside Japan down 0.5%.

"The China-U.S. trade war and the Hong Kong protest are combining to cast a negative pall on Asian markets today," said James McGlew, analyst at stockbroking firm Argonaut.

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"Hong Kong protests have been dragging on for a while and the view from the financial world is that it`s really starting to bite now. The further this drags on it`s certainly going to be very negative."

Gold, which rises during times of uncertainty, rebounded from a three-month low touched on Friday to be last up 0.4% at $1,463.5 an ounce. In currencies, the Japanese yen gained on the dollar to 109.11 while the Australian dollar, a liquid gauge for risk, was off slightly at $0.6855. The dollar index was mostly flat at 98.353 as was the euro at $1.102. Market attention was also on the U.S.-China trade talks.

U.S. President Donald Trump told reporters on Saturday that talks with China had moved more slowly than he would have liked, but added that Beijing wanted a deal more than he did. That was a more upbeat tone than just a few days earlier when he had stressed that the White House would not agree to a full rollback of existing tariffs, remarks that hit stock prices and the dollar.

"Despite his bluster that `China wants a trade deal more than I do`, markets sense that Trump is likely quite keen to call a truce on what is becoming a serious U.S. economic risk heading into the 2020 election year," said David Bassanese, Sydney-based economist at Betashares.

By the close of Wall Street on Friday, optimism had returned to the market as investors bet that Washington needs a deal and it is in the interest of China, too. All three major U.S. indexes eked out record closing highs.

The Dow inched up while the S&P 500 climbed 0.3% and the Nasdaq Composite added 0.5%. The record closing high by the S&P 500 was the fourth in six sessions as U.S. stocks rallied on hopes of a trade deal. In early Asian hours on Monday, E-minis for the S&P500 were 0.2% lower indicating a weak open later in the day.

"Focus this week will again be on any reports on U.S.-China trade negotiations," Bassanese said. "There is still a lingering risk that talks could fail once again, in which case the recent risk-on global sentiment could be quickly unwound."

U.S. officials said a lot of work remained to be done when Trump announced the outlines of an interim deal last month, and Beijing has since pushed back on U.S. demands for big agricultural purchases, among other issues. Analysts said the outlook for equities was highly dependent on U.S. economic data as a U.S.-China trade agreement would help bolster manufacturing and industrial sectors.

Data on October U.S. industrial production and retail sales, along with the National Federation of Independent Business`s monthly small business survey, are scheduled for release this week. Elsewhere, benchmark Brent crude fell 43 cents to $62.08 a barrel while West Texas Intermediate (WTI) crude slipped 35 cents to $56.89 a barrel.

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