Peter Navarro’s comments on trade had threatened to stoke tension with Beijing

Global stocks rebounded from a sharp dip after President Donald Trump rebutted comments by his trade adviser that suggested the US could tear up its preliminary deal with China.
Tokyo’s Topix benchmark was up 1 per cent on Tuesday afternoon in Asia while Hong Kong’s Hang Seng index gained 0.9 per cent. Mainland China’s CSI 300 of Shanghai- and Shenzhen-listed shares rose 0.2 per cent while Australia’s S&P/ASX 200 slipped 0.1 per cent.
Markets across the region were volatile, skidding early in the session after Peter Navarro, Mr Trump’s chief trade adviser, told Fox News that the so-called phase one trade deal between the US and China was “over”.
Mr Navarro faulted Beijing for being slow to alert the global community to coronavirus, which originated in the central Chinese city of Wuhan late last year.
But Washington was quick to retract the comments. Mr Trump tweeted shortly after Mr Navarro’s interview that the trade agreement with China was “fully intact”. In a statement, Mr Navarro said he had “been taken wildly out of context” when talking to Fox News.
The prospect of increased tension between the world’s top two economies at one juncture prompted S&P 500 stock futures to point to losses of 1.3 per cent when trading begins in New York later on Tuesday. Following Mr Trump’s tweet, futures suggested a gain of 0.1 per cent. London’s FTSE 100 was tipped to rise 0.5 per cent. 
The initial Fox News report “sparked concern over the return of the trade war between the world largest economies, which could derail the global recovery after the pandemic hit”, said Ken Cheung, a strategist at Mizuho in Hong Kong.
US-China friction has returned to the fore in recent weeks after Beijing moved to impose a controversial security law on Hong Kong, a semi-autonomous territory. Washington responded by saying it would rescind Hong Kong’s special trading privileges with the US.
Mr Navarro’s comments, “coming from one of the most hawkish members of the Trump administration, seemed more like rhetoric than official” policy, said Johanna Chua, an economist at Citi.
She added that the rally in global markets over the past several weeks suggested that investors were not too worried about US-China tensions, but cautioned that relations between the two could deteriorate as November’s US election draws closer.
Overnight, the S&P 500 rose 0.7 per cent as investors bet that governments across the globe would respond to recent increases in coronavirus infections with new economic support measures. The Nasdaq index gained 1.1 per cent to hit a record high.
But investor optimism over the prospect of a global economic recovery has been challenged by a resurgence in Covid-19 cases in the US and China, as well as parts of Europe and the Americas.
The US on Monday reported more than 25,000 new cases for the fifth straight day, with Arizona, California, Florida, Georgia and Texas among the hotspots. Investors have also had to contend with a spike in infections in Germany. 
However, Larry Kudlow, the White House’s top economic adviser, insisted on Monday that the US would not suffer a “second wave” of the pandemic, and dismissed rising case counts as “just hotspots”.
Oil prices, which have risen in recent weeks as the economic lockdown measures that cratered demand have begun to ease, edged lower. West Texas Intermediate, the US marker, fell 0.5 per cent to $40.53 a barrel while Brent, the international benchmark, slipped 0.2 per cent to $42.98 a barrel.
The yield on US 10-year Treasuries, which are viewed by investors as a haven during times of uncertainty, was down 0.01 percentage point at 0.697 per cent.