A strong Chinese response to last week’s US moves weighed on tech stocks in overnight trading. Bonds yield edged higher and the US dollar held recent gains as investors headed for safety. Iron ore and oil firmed on speculation authorities in China will stimulate further to counter any drag from the trade dispute deterioration.

China’s envoy to the EU flagged a “necessary response” to the blacklisting of technology provider Huawei in the US. China will “make the best possible effort to defend the legitimate rights and interests of Chinese companies”, raising the possibility that the trade dispute will now expand beyond tariffs. A US investment bank warned overnight of an increasing probability of a global recession flowing from the escalation.

These moves present significant challenges for Asia Pacific markets. A slowing in global growth is clearly negative, but many smaller nations in the region could benefit from a re-alignment of trade. Tech stocks are likely to come under immediate pressure, but resource companies, industrial stocks and commodity currencies may find support over the session.

Reserve Bank of Australia meeting minutes released this morning will grab attention ahead of UK inflation data tonight and Federal Reserve meeting minutes on Wednesday. Australian investors may benefit from the afterglow of the surprising Federal election result over the weekend.

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