* Asian stock markets : https://tmsnrt.rs/2zpUAr4
* Bonds hold huge gains, more yield curves invert
* Speculation grows of aggressive central bank easing
* Euro dragged as ECB's Rehn flags Sept move
By Wayne Cole
SYDNEY, Aug 16 (Reuters) - Asian shares were heading for
weekly losses on Friday as conflicting messages on the Sino-U.S.
trade war only added to worries for the global economy, while
talk of aggressive central bank stimulus drove bond yields to
fresh lows.
U.S. President Donald Trump said on Thursday he believed
China wanted to make a trade deal and that the dispute would be
fairly short. Beijing on Thursday vowed to counter the latest tariffs on
$300 billion of Chinese goods but called on the United States to
meet it halfway on a potential trade deal. With no settlement in sight, investors chose discretion over
valour. MSCI's broadest index of Asia-Pacific shares outside
Japan .MIAPJ0000PUS eased 0.17%, to be down 1.4% for the week.
Japan's Nikkei .N225 fell 0.5%, making a loss of 1.8% on
the week, while commodity-exposed Australia .AXJO was heading
for a weekly drubbing of 2.7%.
E-Mini futures for the S&P 500 ESc1 did rise 0.24%, but
were still off 2.2% on the week so far. Overnight, the Dow
.DJI rose 0.39%, while the S&P 500 .SPX 0.25% and the Nasdaq
.IXIC dropped 0.09%.
The spectacular rally in bonds remained the main investor
focus. Yields on 30-year paper US30YT=RR hit an all-time low
of 1.916% to be down 27 basis points for the week, the sharpest
such decline since mid-2012.
That meant investors were willing to lend the government
money for three decades for less than the overnight rate.
Such is the gloom that surprisingly strong U.S. retail sales
came and went with no impact on the bond rally. Analysts have cautioned that the current bond market is a
different beast than in the past and might not be sending a true
signal on recession.
"The bond market may have got it wrong this time, but we
would not dismiss the latest recession signals on grounds of
distortions," said Simon MacAdam, global economist at Capital
Economics.
"Rather, it is of some comfort for the world economy that
unlike all previous U.S. yield curve inversions, the Fed has
already begun loosening monetary policy this time."
CAVALRY COMING
Indeed, futures FEDWATCH imply a one-in-three chance the
Federal Reserve will chop rates by 50 basis points at its
September meeting, and see them reaching just 1% by the end of
next year. There were plenty of other signs the cavalry were coming.
European Central Banker Olli Rehn on Thursday flagged the need
for a significant easing package in September. Markets are keyed for a cut in the deposit rate of at least
10 basis points and a resumption of bond buying, sending German
10-year bund yields DE10YT=RR to a record low of -0.71%.
"Notions that the package will include a revamped QE program
also saw a sharp rally in Italian, Spanish and Portuguese debt,"
said Tapas Strickland, a director of economics at National
Australia Bank.
"If the ECB undertakes such substantive stimulus, it is
unlikely to do so alone given the upward pressure it would put
on the U.S. dollar."
Mexico overnight became the latest country to surprise with
a cut in rates, the first in five years. Canada's yield curve inverted by the most in nearly two
decades, piling pressure on the Bank of Canada to
act.
All the talk of ECB easing knocked the euro back to $1.1108
EUR= and away from a top of $1.1230 early in the week. That
helped lift the dollar index up to 98.164 .DXY and off the
week's trough of 97.033.
The dollar could make little headway on the safe-haven yen,
though, and faded to 106.08 yen JPY= .
The collapse in bond yields continued to make non-interest
paying gold look relatively more attractive and the metal held
firm at $1,524.90 XAU= , just off a six-year peak.
Oil prices were trying to bounce after two days of sharp
losses. Brent crude LCOc1 futures added 23 cents to $58.46,
while U.S. crude CLc1 rose 33 cents to $54.80 a barrel. O/R
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Asia stock markets https://tmsnrt.rs/2zpUAr4
Asia-Pacific valuations https://tmsnrt.rs/2Dr2BQA
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(Editing by Sam Holmes)