Markets are hopeful as Chinese and US negotiators will resume talks this week, though there are warnings that failure to find a deal could hammer valuations (MARIO TAMA)

Hong Kong (AFP) – Asian markets were mixed Tuesday with investors cautiously optimistic that China and the US can reach a deal ending their trade war as the two sides prepare to resume talks this week.

With New York closed for a public holiday there were few catalysts to drive buying, though the release of Federal Reserve minutes on Wednesday will be pored over for an idea of the bank’s interest rate plans.

Top-level officials from the world’s two biggest economies will reconvene in Washington after a series of talks in Beijing last week, with the US side telling President Donald Trump they had been “very productive”.

The positive tone from the diplomats, and the president’s indication he could extend a deadline for agreement, boosted regional markets Monday, extending a 2019 rally fuelled by optimism about an end to the nearly year-long tariffs spat.

Tokyo finished 0.1 percent higher, Hong Kong dipped 0.3 percent in the afternoon and Shanghai closed fractionally up.

Sydney gained 0.3 percent, Singapore put on 0.2 percent and Taipei 0.2 percent, with Seoul and Wellington each off 0.2 percent. Manila fell while Mumbai and Jakarta were up.

– Britain’s Labour strife –

However, OANDA senior market analyst Jeffrey Halley warned of trouble ahead if Chinese and US officials do not agree a deal.

“The rallies (Monday) were impressive given the talks ended last week without any concrete results and have yet to even recommence in Washington this week due to the US public holiday,” he said.

“Without sounding like a damp squib, there is now a vast amount of ‘optimism’ baked into currency, stock and energy market prices globally and precisely zero concrete detail. The unwind, should no deal be struck, could be very ugly.”

Oil prices were mixed after rallying Monday on trade talks hope and signs that OPEC and other key producers are narrowing output.

“Saudi Arabia seems willing to do whatever is necessary to reach levels of $80 a barrel, and judging by the price reaction, they’re on track,” said Eugen Weinberg, head of commodities research at Commerzbank AG.

“Even rather bearish factors, like a stronger-than-expected rise in US oil production, does not seem to derail the price recovery.”

On currency markets the pound was down, with uncertainty fanned by news that seven pro-remain MPs had split from Britain’s opposition Labour Party over its handling of Brexit and a row over antisemitism.

The move “looks awfully like a bungled mess of the creation of a new party, which we think is more likely to be pound-negative… by giving Brexit a less effective opposition”, said Peter Chatwell, head of European rates strategy at Mizuho International, told Bloomberg News.

He added that it left both main parties “with clear pro-Brexit mandates”.

– Key figures around 0700 GMT – 

Tokyo – Nikkei 225: UP 0.1 percent at 21,302.65 (close)

Hong Kong – Hang Seng: DOWN 0.3 percent at 28,264.04

Shanghai – Composite: FLAT at 2,755.65 (close)

Dollar/yen: DOWN at 110.60 yen from 110.61 yen at 2200 GMT 

Euro/dollar: DOWN at $1.1296 from $1.1309

Pound/dollar: DOWN at $1.2899 from $1.2929

Oil – West Texas Intermediate: UP 30 cents at $55.89

Oil – Brent Crude: DOWN 13 cents at $66.37 per barrel 

New York – CLOSED for bank holiday

London – FTSE 100: DOWN 0.2 percent at 7,219.47 (close)

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