Asia stocks sink on heightened US-China trade tensions

Investing.com-- Most Asian stocks fell on Monday as fears of a U.S.-China trade war escalation grew after President Donald Trump accused China of violating a recent trade deal, which Beijing rebuked. 

Markets were also rattled by Trump hiking steel and aluminum import tariffs, which left investors uncertain over U.S. policy.

Increased military action between Russia and Ukraine, ahead of peace talks, also weighed on sentiment, while reports suggested that Washington was considering trade tariffs aimed at China and India to reduce their buying of Russian oil. 

Regional markets fell in tandem with a decline in U.S. stock index futures, with S&P 500 Futures down 0.4%. 

A market holiday in China saw Asian trading volumes trend slightly lower, although losses in Hong Kong stocks reflected souring sentiment towards Chinese assets. Weak purchasing managers index data released over the weekend added to this trade. 

Hong Kong’s Hang Seng index slumped 2.3%, with losses in major automakers, such as BYD  (HK:1211), also weighing amid fears of a worsening price war in the sector. Hong Kong stocks were by far the worst performers in Asia on Monday. 

Japan’s Nikkei 225 index slid 1.5%, pressured by a stronger yen, while the TOPIX lost 1%. 

Australia’s ASX 200 shed 0.2%, while Singapore’s Straits Times index lost 0.4%. 

Gift Nifty 50 Futures for India’s Nifty 50 index fell 0.3%, pointing to a weak open. But losses are expected to be limited by substantially stronger-than-expected gross domestic product data released on Friday, which showed Indian economic growth remaining resilient in the March quarter. 

South Korea’s KOSPI outperformed, rising 0.2% before snap presidential elections set to take place on Tuesday.

China rejects Trump’s accusation of violating Geneva deal 

China on Monday “firmly rejected” Trump’s accusation that the country had violated the terms of a mid-May trade deal signed in Geneva. 

China’s commerce ministry said Trump’s accusations were unreasonable, and that Beijing will continue to safeguard its interests. Trump had not specified just what China’s violations were.

China’s response adds to recent signs of strain in U.S.-China relations, especially after U.S. officials admitted last week that trade talks between the two had “stalled.” 

The comments, coupled with China’s repeated criticism of U.S. controls on its chip industry, sparked increased concerns that trade relations between the two were souring, and that no lasting trade deal will be reached in the near-term. 

China PMIs underwhelm, highlight trade war headwinds 

Chinese PMI data, released over the weekend, showed business activity in the country remained pressured by a trade war with the United States.

China’s manufacturing sector shrank for a second straight month in May, as overseas orders remained under pressure from U.S. tariffs.

Weakness in non-manufacturing PMI also showed domestic businesses under pressure, highlighting little improvement in China’s persistent disinflationary trend. 

While China and the U.S. did agree to lower their respective trade tariffs in May, the levies still remained at historically high levels. 

This, coupled with Beijing’s laggard pace in doling out more stimulus, kept investors on edge over the Chinese economy.