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By Stanley White
TOKYO (Reuters) – Asian stocks fell the most in a week on Wednesday as the United States and China’s ever-expanding dispute over trade and foreign policy showed little sign of coming to an end, weighing on global economic growth.
MSCI’s broadest index of Asia-Pacific shares outside Japan () was down 0.3%. Japan’s Nikkei () slid 0.81%. Australian shares () were down 0.92%.
U.S. two-year Treasury yields fell and the curve steepened in Asia after U.S. Federal Reserve Chair Jerome Powell signaled further interest rate cuts and the resumption of bond purchases to address a recent spike in money markets rates.
Oil prices fell in Asia as U.S. visa restrictions on Chinese officials and the addition of more Chinese companies to a U.S. trade blacklist weighed on already slim hopes that Washington and Beijing could reach a truce at trade negotiations this week.
The United States and China are engaged in a year-long row that has slowly expanded beyond trade policy, suggesting even more damage to an already fragile global economy.
“Stock markets are still trying to price in the slowdown in global growth,” said Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Kokusai Asset Management Co in Tokyo.
“The dispute between the United States and China shows now sign of ending. We’re losing confidence in the U.S. economy. There’s more uncertainty about where the Fed is really headed.”
U.S. stock futures () edged 0.06% higher in Asia, but sentiment was weak after the S&P 500 ended 1.56% lower on Tuesday in response to the U.S. visa restrictions.
The U.S. State Department announced the move just a day after the U.S. Commerce Department cited the mistreatment of Uighur Muslims in China in its decision to add 20 Chinese public security bureaus and eight companies to a trade blacklist.
The U.S. moves cast a pall over U.S.-China trade talks in Washington, where deputy negotiators met for a second day to prepare for the first minister-level meetings in more than two months on Thursday and Friday.
Washington is also moving ahead with discussions about restrictions on capital flows into China, Bloomberg reported.
Tit-for-tat tariffs imposed by the United States and China have roiled financial markets and slowed capital investment and trade flows.
U.S. President Donald Trump has said tariffs on Chinese imports will rise on Oct. 15 if no progress is made in the negotiations.
Worries about U.S.-Sino relations lifted safe-haven assets in Asia. The yen edged around 0.1% higher to 106.95 per dollar. also rose 0.21% to $1,508.90 per ounce.
Sterling traded near a one-month low of $1.2196 due to reports that Brexit talks between Britain and the European Union were close to breaking down.
The two-year U.S. Treasury yield () fell to 1.4174%. The spread between two-year and 10-year Treasuries, the most common definition of the yield curve, widened to 11.3 basis points.
The Fed’s Powell, in a speech on Tuesday, flagged openness to further rate cuts and said the time to allow the Fed’s asset holdings to begin to expand again “is now upon us.”
The Fed had been shrinking its balance sheet as it unwound crisis-era bond buying programmes. Recent volatility in U.S. money markets raised concern the Fed’s balance sheet became too small, leaving banks with inadequate reserves.
Powell said balance sheet expansion should not be read as an effort to stimulate the economy, but weak data on the U.S. manufacturing and services sector last week rattled investors’ confidence that the U.S. economy remained robust.
U.S. crude () fell 0.42% to $52.41. Slower growth in the United States and China, the world’s two-largest economies, suggests less demand for energy in the future.
A larger-than-expected increase in U.S. crude inventories also fanned fears that the global oil market will continue to struggle with excess supply.
