Asia stocks dented by trade war, Brexit showdown paralyses pound

Global stocks faced headwinds on Tuesday, stymied by US-China trade frictions while the British pound flirted with 2 1/2-year lows as Prime Minister Boris Johnson indicated he could call an election to block lawmakers' efforts to avert a no-deal Brexit.

MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.3 percent while Japan's Nikkei rose by 0.1 percent.

China's mainland shares were fractionally lower while Hong Kong's benchmark edged up 0.1 percent.

The United States began imposing 15 percent tariffs on a variety of Chinese goods on Sunday and China began imposing new duties on US crude oil, the latest escalation in their trade war.

Although US President Donald Trump has said both sides would still meet for talks later this month, tensions have shown little sign of abating.

China said on Monday it lodged a complaint against the United States at the World Trade Organization over US import duties, trashing the latest tariff actions as violating the consensus reached by leaders of China and the United States in a meeting in Osaka.

"We have so many problems around the world, starting from the US-China trade war and Brexit. But investors appear to be getting used to be exposed to them," said Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust Asset Management.

"No one really thinks Washington and Beijing will solve the issues. But as long as the US economy keeps going, stock prices will have limited downside," he said.

US manufacturing survey by the Institute for Supply Management (ISM) due at 1400 GMT Tuesday is a major focus for investors.

Although US manufacturing activity has been slowing in recent months, the ISM's index has so far stayed above 50, pointing to growth in the sector.

US bond yields rose a tad on profit-taking after a market holiday in the United States on Monday.

The 10-year US Treasuries yield rose 2.5 basis points to 1.532 percent, off a three-year low of 1.443 percent touched last week. The yield dropped 51.5 basis points last month, the biggest monthly drop since August 2011.

In the currency market, sterling dipped 0.25 percent to $1.2030, after having dropped 0.85 percent on Monday. The currency stood just above its 2 1/2-year low of $1.2015 hit on Aug. 12.

Prime Minister Johnson implicitly warned lawmakers on Monday that he would seek an election on Oct 14 if they tied his hands on Brexit, ruling out ever countenancing a further delay to Britain's departure from the European Union.

"Depending on further developments in UK politics, the pound could see sharp moves in the coming week or two. We think it could fall to as low as $1.13 this month," said Sumino Kamei, senior currency strategist at MUFG Bank.

Uncertainties over Brexit have already hit the UK economy, with survey by the IHS Markit/CIPS showing British manufacturing contracted last month at the fastest rate in seven years.

The picture is not much better in Europe, and the European Central Bank is widely expected to cut interest rates further into negative levels next week to cushion the blow, pressuring the euro.