A strong jobs report on Friday and Donald Trump’s decision to meet Kim Jong Un helped fuel a surge in global equities at the end of last week, overshadowing US tariffs and fears of a trade war.
But fears returned following comments from a European trade commissioner that the EU would “stand up to bullies” while Trump said he will look into cutting levies the bloc imposes on US goods.
The Dow and S&P 500 each fell, though the Nasdaq ticked up to another record high.
Attention is now on the inflation release later in the day, which will be pored over for an idea about the Federal Reserve’s timetable for hiking interest rates.
A strong reading could hit markets worried about the impact of higher borrowing costs on the investment environment.
“Equity investors are finding it difficult to ignore the gnawing concerns about trade wars and are adopting a defence first strategy despite the (positive) jobs number,” said Stephen Innes, head of Asia-Pacific trade at OANDA.
Yen strength
“Keep in mind the spotlight will be on US (consumer inflation) tonight, and it was only one month ago a surprise inflation print sent the market into a tailspin, so likely some caution ahead of the critical US inflation data. Overall investors remain very cautious as sentiment recovers.”
Asian markets swung in and out of positive territory through the morning and by the break Tokyo was down 0.2%.
Hong Kong rose 0.3% while Shanghai edged up 0.1%, Seoul and Singapore were flat and Sydney slipped 0.7%. Wellington and Taipei were both higher.
The dollar was struggling around the mid-106 yen region as traders turn to safe bets on worries about the political future of Japanese Prime Minister Shinzo Abe and Finance Minister Taro Aso, who have both been sucked into a land deal scandal.
The controversy comes as dealers eye a wind-down of Japan’s crisis-era stimulus programme, which is expected to put upward pressure on the yen, with some commentators saying the greenback could fall below 100 yen for the first time since 2016.
“The theme for 2018 is the risk of the dollar-yen breaking 100,” said Masashi Murata, a currency strategist at Brown Brothers Harriman in Tokyo. The yen above that level “wouldn’t look excessive from the perspective of its fundamentals”, he told Bloomberg News.