Major markets in Asia Pacific closed higher on Monday, following a volatile week for global markets as growing trade war fears dented investor sentiment. Mainland Chinese markets bounced back from the previous week's losses to close higher Monday. The Shanghai composite traded up 1.45% to close at 2,814.99 while the Shenzhen composite added 1.92% to 1,508.21. Hong Kong's Hang Seng index was fractionally higher at 25,962.42 as of 3:15 p.m. HK/SIN. But, shares of Hong Kong flag carrier Cathay Pacific tumbled more than 4% as of 3:15 p.m. HK/SIN after it suspended a pilot for his involvement in the ongoing anti-government protests in the city. The carrier said "overly radical" staff would be barred from crewing flights to the mainland. Cathay's decision came a day after China's aviation authority issued a "major aviation safety risk warning" to the airline. Unrest in Hong Kong continued into its 10th week, with police and protesters clashing on Sunday. Markets in rest of the region rose, with major indexes in Japan, India and Singapore closed for public holidays. Australia's benchmark S&P/ASX 200 retraced some of its early losses to climb marginally higher to 6,590.30. Major miners struggled for gains: Rio Tinto shares tumbled 2.75%, BHP shares were down 0.75% and Fortescue dropped 3.99%. In South Korea, the Kospi clawed back losses to rise 0.23% to close at 1,942,29. Overall, MSCI's broadest index of Asia-Pacific shares outside Japan was almost flat. "Trade tensions continued to drive financial market moves going into the end of the week, with markets very sensitive to reports on the US-China relationship," Jack Chambers from ANZ Research wrote in a Monday morning note. "A risk-off tone hit the markets as President Trump warned that talks scheduled for next month may not take place."

Trade war escalation

Trump told reporters on Friday the U.S. is not ready to strike a trade deal with China. "China wants to do something, but I'm not doing anything yet," Trump said. "Twenty-five years of abuse. I'm not ready so fast." Both sides are set to resume trade negotiations in Washington in early September. At the same time, a new 10% tariff on additional $300 billion worth of Chinese goods are due to go into effect beginning Sept. 1. U.S.-China trade war developments have roiled markets for more than a year, and there have been signs the rafts of additional tariffs from both sides are having real effects on economies around the world. In fact, in a note dated Aug. 12, UBS economists downgraded China's growth outlook as a result of the 10% levy the U.S. is set to impose on additional Chinese goods. "We estimate the latest tariff escalation will lower China's GDP growth by at least 30 (basis points) over a 12-month period, and the biggest hit will be in Q4 this year," the economists wrote. "Our estimate takes into account weaker exports and associated multiplier effect on consumption and investment, but does not include the negative spill-over impact on business confidence and supply chain decisions." The economists said they were revising down their 2019/2020 baseline GDP growth forecast from 6.2% and 6.1% to 6.1% and 5.8%, respectively. "We see higher tariffs dampening further exports to the US, though related imports will drop and weaker demand and commodity prices should help China to maintain a current account surplus," they said. Further escalation of the trade war could potentially see China's GDP growth falling to 5.5% in 2020, the economists warned.

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