Asian markets once again fell into the red on Thursday as investors anxiously await the start of high-stakes trade talks between China and the United States. After several rounds of negotiations, the two-day meeting in Washington, which kicks off later in the day, has taken on huge significance after Donald Trump threatened to ramp up tariffs on Chinese goods from Friday blaming backsliding by Beijing.
The president's remarks on Sunday battered global equities and fuelled fears the economic superpowers - who appeared just last week to be nearing a deal - could become entangled in a brutal trade war with worldwide consequences.
While Trump has looked to soothe concerns -- telling a rally Wednesday that whatever happens, don't worry about it. It will work out. It always does -- investors are on edge.
China, for its part, said an escalation was not in the interests of the two countries' people but warned it would impose necessary countermeasures if the tariffs on US$200 billion of goods were more than doubled Friday.
In morning trade Hong Kong stocks sank 1.6% and Shanghai shed one percent while Tokyo was off 1.2% at the break.
Singapore, Seoul, Taipei, Jakarta and Manila were also sharply lower though Sydney and Wellington chalked up small gains.
Volatility in the markets is really headline driven, particularly around the fluid conversations between the US and China, Charlie Ripley, a senior investment strategist at Allianz Investment Management, said.
We'll have to see how this thing plays out at the end of the week... but we would continue to expect this environment as long as the headlines are going back-and-forth.
Still, there is still some optimism that the talks will eventually end in a deal.
Both sides are so hungry to get this thing done, said Welles Orr, a senior trade official under President George H. W. Bush.
The incentive is strong for the US, because they've made such good headway. On the other hand, the Chinese want to show they can be serious negotiators and deliver on their commitments.
The uncertainty flowing through trading floors weighed on currency markets with higher-yielding, riskier units such as the Australian dollar, South Korean won and Indonesian rupiah all down against the greenback.
China's yuan also extended losses and is sitting at a four-month low.
On oil markets both main contracts resumed their downward spiral with the trade war fear overshadowing a drop in US inventories, which had helped spark a pick-up in the market Wednesday.