Asian markets fell on Friday as investors wound down for the end of the month, while awaiting news of progress on China-US trade talks but with optimism tainted by the row over Hong Kong.
Donald Trump's decision to sign a bill in support of pro-democracy protesters in the city and back their rights sparked warnings of retaliation from Beijing and fuelled fears for negotiations on a mini trade deal that are in their final straight.
However, China has not detailed what its response to the Hong Kong law will be and observers say it is unlikely to do anything to derail a tariffs agreement owing to its weakening economy.
"China's threats to retaliate over the US Hong Kong law will probably remain just that; threats," said Jeffrey Halley at OANDA.
"China has its own issues, especially around corporate debt and regional bank credit quality. It can ill-afford to waste any progress so far. Pragmatism should overcome anger."
"If there is a skinny deal, that will allow markets and risk assets to grind higher even if there is no real prospect of a phase two or subsequent detailed negotiation occurring this side of US Presidential elections."
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