Japan Nikkei extends losses on yen firmness, ahead of US-China trade talks

Headline equities of the Japan share market declined on Tuesday, 29 January 2019, dragged down on tracking soft lead from Wall Street overnight after construction equipment behemoth Caterpillar Inc's quarterly earnings coming in below median market expectations and on caution before high level U.S.-China trade talks set to start in Washington Wednesday. Total 20 sub-indexes of TOPIX fell into red terrain, with shares in Machinery, Electric Appliances, Oil & Coal Products, Rubber Products, and Securities & Commodities Futures issues being notable losers, while Electric Power & Gas, Land Transportation, and Pulp & Paper were notable gainers. In afternoon trade, the 225-issue Nikkei index fell 200.53 points, or 1%, at 20,448.47. The broader Topix index of all First Section issues on the Tokyo Stock Exchange dropped 11.37 points, or 0.73%, to 1,544.14.

Chinese President Xi's top economic aide, Vice Premier Liu He, will meet with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Wednesday and Thursday. With high level US-China trade talks set to start in Washington Wednesday, American prosecutors on Monday alleged that Huawei stole trade secrets from an American rival and committed bank fraud by violating sanctions against doing business with Iran.

Market participants are focusing on the Federal Open Market Committee policy meeting between Jan 29-30, where Chairman Jerome Powell is widely expected to acknowledge growing risks to the U.S. economy as global momentum weakens. Investors expect the Fed to adopt a more cautious stance on policy than they were in 2018, pressured by signs of a peak in U.S. corporate earnings and the loss of economic momentum both at home and globally. Interest rate futures market is pricing in no Fed hikes this year. Last year, the dollar enjoyed a solid rally as the U.S. central bank's raised rates four times thanks to a robust economy.

Shares of machinery and electric machinery sectors were lower after profit warning from Caterpillar and Nvidia Corp. Caterpillar Inc on Monday missed quarterly earnings estimates, hurt by soft Chinese demand, higher manufacturing and freight costs. Nvidia Corp cut its fourth-quarter revenue estimate by half a billion dollars because of weak demand for its gaming chips in China and lower-than-expected data centre sales. Komatsu Ltd and Hitachi Construction Machinery both plunged more than 5%.

Chip-related stocks also lost ground after Nvidia's estimate cut. Tokyo Electron shed 3.8% and Advantest Corp tumbled 7% and Screen Holdings dropped 7.6%. Silicon products maker Sumco Corp stumbled 5.3% and Shin-Etsu Chemical lost 2.5%.

Bucking trend, defensive stocks such as utility, food and railway names shined. Tokyo Electric Power Co rose 2.2%, Nissin Foods Holdings gained 0.9% and Central Japan Railway added 0.7%.

CURRENCY NEWS: Japanese yen appreciated against greenback and other major currencies on Tuesday on caution ahead of complicate high-level U.S.-China trade talks set to begin on Wednesday. The United States on Monday charged China's Huawei Technologies Co Ltd, its chief financial officer and two affiliates with bank and wire fraud to violate sanctions against Iran in a case that has escalated tensions with Beijing. Investors fear the charges could complicate high-level trade talks set to begin on Wednesday where China's Vice Premier Liu He will meet with U.S. Trade Representative Robert Lighthizer and others. The yen, a currency sought out during times of market uncertainty or economic stress, advanced a little on the greenback to 109.27.

OFFSHORE MARKET NEWS: US benchmarks fell after Caterpillar and Nvidia blamed slowing global growth for disappointing results, halting a three-day rally for the S&P 500 Index. The Dow Jones Industrial Average dropped 208.98 points (0.84%) to close the session at 24,528.22. The broad-based S&P 500 shed 20.91 points (0.78%) to end at 2,643.85, while the tech-rich Nasdaq Composite Index fell 79.18 points (1.11%) to 7,085.68.

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