China’s top negotiator Vice Premier Liu He is holding high-stakes talks with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin in Washington (ANDREW CABALLERO-REYNOLDS)

Hong Kong (AFP) – Shanghai led gains across most Asian and European markets Friday at the end of a torrid week for equities, with investors keeping a eye on China-US trade talks after Washington more than doubled tariffs on $200 billion of imports.

Equities in Asia started well as dealers took heart from positive comments from Donald Trump on the prospects for a deal but the region turned negative as the threatened levies kicked in and China vowed to hit back, saying it “deeply” regretted the US move.

However, Shanghai and Hong Kong bounced back on hopes the economic superpowers will be able to reach a deal to avert a trade war that most observers warn could shatter global growth and batter markets.

The tariffs came in after the first day of high-stakes negotiations in Washington between Chinese Vice Premier Liu He, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.

After a week in which trading floors have been a sea of red, regional equities were given a lift by Trump saying he had received a “beautiful letter” from China’s Xi Jinping and that it was “possible” to get a deal.

Shanghai, which lost more than seven percent from Monday to Thursday, ended up 3.1 percent, while Hong Kong piled on 0.8 percent.

Sydney and Singapore each added 0.3 percent, while Seoul was up a similar amount as investors brushed off news that North Korea had tested a long-range weapon, which is likely to raise tensions after the breakdown of denuclearisation talks with the United States.

But Tokyo finished down 0.3 percent, while Wellington, Manila, Taipei, and Mumbai also fell.

In early trade London rose 0.6 percent, Paris gained 0.9 percent and Frankfurt advanced one percent.

– ‘The peace is fragile’ –

“Given the deadline has now passed there is the possibility that tariffs could still be avoided given that US officials allowed for goods currently in transit to be exempt from the new tariff increases,” said Michael Hewson, chief market analyst at CMC Markets UK.

“Which means there is a potential window, albeit a limited one, for an agreement to be hammered out.”

But a lot of uncertainty remains.

“Markets will be in a holding pattern as we await the outcome of the meeting,” said Khoon Goh, head of Asia research at ANZ Bank. “If there is a breakdown and the tariffs go up, then we will see a risk-off tone in markets.”

OANDA senior market analyst Jeffrey Halley said the fact that tariffs were to rise midway through the talks gave “precious little time to come up with something that satisfies both sides”.

Although markets are up, “the peace is fragile, and it won’t take much today to panic investors into heading for the exit door en masse”, he added.

Halley also warned that while Trump praised Xi’s letter it was hard “to see how either of these two presidents will ever manage to really share the toys and play nicely on the global stage”.

In worrying sign, Hu Xijin, editor-in-chief of the Global Times — which is published by the Communist Party’s People’s Daily — cited a source familiar with the talks as saying there is “zero” chance of a deal before Friday.

“If it is that bad, the real suspense is whether the two sides will continue negotiations after Friday,” Hu said. 

The slightly improved sentiment, and bargain-buying, provided support to higher-yielding, riskier currencies, with the yuan edging higher though it continues to wallow around four-month lows.

On oil markets both main contracts edged up, but Halley warned that failure of the trade talks “would be the straw that breaks the camel’s back” and send the commodity tumbling, despite US-Iran tensions and Venezuela’s political crisis.

 – Key figures around 0820 GMT – 

Tokyo – Nikkei 225: DOWN 0.3 percent at 21,344.92 (close)

Hong Kong – Hang Seng: UP 0.8 percent at 28,550.24 (close)

Shanghai – Composite: UP 3.1 percent at 2,939.21 (close)

London – FTSE 100: UP 0.6 percent at 7,251.24

Euro/dollar: UP at $1.1227 from $1.1218 at 2050 GMT

Pound/dollar: UP at $1.3003 from $1.3011 

Dollar/yen: UP at 109.76 yen from 109.71 yen

Oil – West Texas Intermediate: UP 43 cents at $62.13 per barrel

Oil – Brent Crude: UP 41 cents at $70.80 per barrel

New York – Dow: DOWN 0.5 percent at 25,828.36 (close)

— Bloomberg News contributed to this story —

Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.