Asian markets hit by new lockdown, fresh China-US tensions

A worrying increase in new cases across the planet has forced governments to revert to measures aimed at preventing the disease's spread.

Fears over a spike in infections around the world, the reimposition of containment measures and China-US tensions pushed Asian equities lower Tuesday, while oil prices were also hit by speculation top producers will begin tapering their output cuts.

And news that Singapore's economy, considered a regional barometer, contracted a mind-boggling 41 percent in the second quarter provided a stark reality-check for traders.

After hitting lows in March, markets have been surging thanks to government support and optimism that the world economy will bounce back as crippling lockdowns are eased.

But a worrying increase in new cases across the planet has forced governments to revert to measures aimed at preventing the disease's spread.

California, the richest of the US states, ordered all indoor restaurants, bars and movie theatres to re-close, while churches, gyms, shopping malls, hair salons and non-essential offices have been told to shut up shop in several densely populated counties, including Los Angeles.

The measures follow new restrictions imposed in Texas, Arizona, Florida and other major states.

Meanwhile, Hong Kong on Monday announced sweeping new measures as the city suffers a relapse. Melbourne is already under a new lockdown and there are signs of new outbreaks in Sydney.

The new spikes come as World Health Organization chief Tedros Adhanom Ghebreyesus warned: "There will be no return to the 'old normal' for the foreseeable future."

He added that without governments adopting a comprehensive strategy, the situation would get "worse and worse and worse".

The developments overshadowed an announcement from Pfizer and BioNTech that two of four vaccine candidates for the virus received "Fast Track" designation from the US Food and Drug Administration.

Asian tracked a weak lead from Wall Street.

Hong Kong fell 1.2 percent, Shanghai dropped 0.8 percent and Tokyo lost 0.8 percent. Sydney fell 0.7 percent and Seoul was off 0.5 percent with Taipei 0.1 percent lower, though Wellington and Jakarta edged up.

Singapore was 0.2 percent down after figures showed the city state's trade-dependent economy plunged into recession for the first time in a decade as it contracted a record 41.2 percent on-quarter in April-June and 12.6 percent on-year.

The worse-than-expected figures will also ring alarm bells for Asia's many trade-dependent economies as Singapore is typically hit first before ripples spread across the region.

"There is a risk that the divergence between a gloomy economic outlook and unexpectedly strong returns from equity markets is reconciled by some pull-back in asset prices rather than a surge in economic optimism," said Chris Iggo, at AXA Investment Managers. "There is a case for caution."

Geopolitical tensions were also back on the table after US Secretary of State Mike Pompeo called China's pursuit of resources in the South China Sea "unlawful", ramping up support for Southeast Asian nations and triggering an angry response from Beijing.

California has reimposed restrictions — A jump in new infections has led California to reimpose restrictions in the richest US state, including the closure of bars and restaurants. Photo: AFP / Robyn Beck

The comments added to a laundry list of issues that have the two economic superpowers at odds, including China's role in the pandemic outbreak, trade, Hong Kong and Huawei.

"The US relationship with China and jobs and law-and-order form the troika of issues that will serve as the primary platform for President Trump's re-election campaign," said Stephen Innes at AxiCorp.

"Growing US-China tensions are now a daily breakfast staple and will likely remain so into the November election."

Oil markets were sharply lower as new lockdowns fuel concerns about demand, while focus is on this week's technical gathering of key crude producers inside and outside OPEC who are expected to roll back production cuts.

The group will discuss its 10-million-barrels-a-day cut in production that was agreed earlier this month to support prices as they plunged to record lows, with speculation the figure could be tapered to around 7.7 million.

Tokyo - Nikkei 225: DOWN 0.8 percent at 22,593.27 (break)

Hong Kong - Hang Seng: DOWN 1.2 percent at 25,461.50

Shanghai - Composite: DOWN 0.8 percent at 3,417.21

West Texas Intermediate: DOWN 2.2 percent at $39.23 per barrel

Brent North Sea crude: DOWN 1.8 percent at $41.95 per barrel

Euro/dollar: DOWN at $1.1340 from $1.1344 at 2050 GMT

Dollar/yen: DOWN at 107.19 yen from 107.24 yen

Pound/dollar: DOWN at $1.2544 from $1.2551

Euro/pound: UP at 90.41 pence from 90.38 pence

New York - Dow: FLAT at 26,085.80 (close)

London - FTSE 100: UP 1.3 percent at 6,176.19 (close)