Asian shares climb to 14-week highs on hopes of a trade deal

Reuters SHANGHAI | Updated on November 04, 2019

Asian shares surged on Monday, with a broad regional gauge hitting more than 14-week highs, as growing optimism over US-China trade talks and upbeat US job data boosted global investors' appetite for riskier assets.

MSCI's broadest index of Asia-Pacific shares outside Japan jumped 1.08 per cent, touching its highest level since July 24, and was on track for its biggest one-day gain since October 11.

Equity markets in Europe were set to follow Asia higher, with the pan-region Euro Stoxx 50 futures up 0.53 per cent, the German DAX futures 0.49 per cent higher and FTSE futures rising 0.41 per cent in early trading.

In Asia, Hong Kong's Hang Seng rose 1.36 per cent, and Seoul's Kospi added 1.43 per cent. In mainland China, blue chips were up 0.72 per cent, and Australian shares were 0.27 per cent higher. Markets in Japan were closed for a holiday.

The US and China both said on Friday that they had made progress in talks aimed at defusing their protracted trade war, and US officials said a deal could be signed this month.

But in a note to clients, analysts at National Australia Bank sounded a note of caution.

“As much as the US-China trade updates continue to point to a Phase 1 deal looking like a certainty, the contentious issues on whether the US will cancel the planned December tariffs and remove some of the current tariffs in line with China's demands remains an unknown and if the issue is not resolved then a deal could easily collapse,” they said.

In comments on Friday, White House economic adviser Larry Kudlow said tariffs set to kick in on Dec. 15, which would cover Chinese imports such as laptops, toys and electronics, would remain on the table, and the decision whether to cancel them would be made by US President Donald Trump.

Any lingering uncertainty over the outlook for trade talks was not enough to keep the S&P 500 from gaining 0.97 per cent and the Nasdaq rising 1.13 per cent to fresh record closing highs on Friday.

The Dow Jones Industrial Average rose 1.11 per cent.

On Monday, the US S&P 500 e-mini stock futures were up 0.2 per cent at 3,067.8.

US job growth slowed less than expected in October and hiring in the prior two months was stronger than previously estimated, data from the Labour Department showed on Friday.

Those numbers followed a private survey of manufacturers in China that showed better-than-expected factory activity in October.

Rob Carnell, Asia-Pacific chief economist at ING in Singapore, said some market optimism was “probably justified” in the wake of the positive data.

“Everybody had been looking for a much worse number and it didn't materialise, so some bounce from that was entirely plausible and reasonable.”

But he added that continued uncertainty over trade talks and less room for monetary easing by global central banks made for a murky outlook.

“It's difficult to see why you wouldn't be at least thinking, there is a 'good profit-taking opportunity right now' and positioning for a slightly worse outcome,” he said.

While cash treasuries were not trading due to the Japanese market holiday, US 10-year Treasury futures were down 0.11 per cent amid the broadly bullish market mood.

The implied yield on the 10-year Treasury futures contract expiring in December was 1.65 per cent.

Oil prices, which had surged on hopes for a US-China trade deal, pulled back on Monday. Global benchmark Brent crude was off 0.57 per cent at $61.34 per barrel and US West Texas Intermediate crude was 0.55 per cent lower at $55.89.

In the currency market, the dollar was up 0.06 per cent against the yen at 108.23, and the euro was up 0.02 per cent to buy $1.1167.

The dollar index, which tracks the greenback against a basket of six major rivals, was down 0.02 per cent at 97.222.

Those small moves contrasted with a 1.42 per cent jump in the South African rand against the dollar. The currency rallied on relief that Moody's maintained South Africa's investment-grade rating on Friday, though the agency cut its outlook on the rating to “negative”.

China's yuan also strengthened, with the positive market tone around trade talks helping it to rise to a 2-1/2 month high against the dollar. It was last up 0.15 per cent at 7.0267 per dollar.

Gold was slightly lower as investors moved into riskier assets. Spot gold was trading at $1,511.52 per ounce, down 0.13 per cent.

Published on November 04, 2019

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