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Markets drop over US-China pact doubt

Markets drop over US-China pact doubt

Asian markets mostly dropped on Tuesday as the previous day’s euphoria over the China-US trade ceasefire gave way to questions about whether the two can ultimately resolve their differences.

However, oil prices continued to rise, building on Monday’s surge fuelled by the agreement, as well as news of a Russia-Saudi Arabia pact to cap output.

Global investors were given some much-needed Christmas cheer at the weekend after Donald Trump and Xi Jinping called a halt to their painful tariffs battle for 90 days while they try to resolve their differences.

The news lit a fuse under markets after a torrid year that has been dominated by the trade war between the world’s top two economies, which many fear will hit global growth.

However, there is concern that the three-month grace period will not be enough for them to hammer out agreements on key issues, particularly on intellectual property protection.

“Can the US and China really resolve their differences in 90 days?” asked Rodrigo Catril, senior strategist at National Australia Bank.

“It seems that more details and signs of progress will be needed if the initial trade truce warm fuzzy feeling is to be sustained.”

Also, later on Monday there was uncertainty about Trump’s claims in a tweet that China had agreed to slash tariffs on car imports, with two of his top advisers unable to provide clarity on the issue.

“That’s what happens when you don’t have the detailed negotiations going into the summit” and end up with the “broad swath of a 35,000-foot deal,” said Bonnie Glaser, a China expert at the Center for Strategic and International Studies in Washington.

“It’s risky. There’s certainly no guarantees that it will produce the outcomes that we want.”

Hong Kong dipped 0.3 per cent, Tokyo fell 0.7 per cent by lunch, Shanghai was 0.2 per cent off and Sydney lost 0.6 per cent.

Still, Jeff Kleintop, chief global investment strategist at Schwab Center for Financial Research remained upbeat.

“It’s easy to see the trade deal as a half empty [glass] – that it’s just a postponement and that they’ll work together but that there really isn’t any kind of resolution,” he said. “But I think you can see it as a half full glass.”

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