Asian shares rise as investors relax about China-US trade war
Their optimism is in sharp contrast to economists’ views on the likely fallout of trade tension
Shanghai — Asian stocks followed global indices higher on Thursday, as investors took a less bearish view on the impact of the US-China trade war on markets — a sharp contrast to economists’ dim expectations for US growth amid the worsening tension.
MSCI’s broadest index of Asia-Pacific shares outside Japan took its lead from gains on Wall Street overnight, rising 0.2%.
Japan’s Nikkei stock index was flat, with a recent rally appearing to lose steam as it entered its fifth day.
Australian shares eased 0.2%.
But gains in the MSCI index were tempered as a rebound in Chinese shares faltered, with the Shanghai composite index dropping 0.1%, reversing early gains.
Shares in Hong Kong also turned lower as the Hang Seng index edged down 0.04%. The broad index fell despite encouraging signals on investors’ appetite for Hong Kong listings, after a strong debut by Chinese online food delivery-to-ticketing services firm Meituan Dianping.
Rob Carnell, chief economist and head of research, Asia-Pacific at ING, said he saw more reasons to take a "glass-is-half-full" approach given the recent emerging market selloff.
"It’s not my natural state of being at all, but I’m always looking for the bad in things, and there’s plenty out there, and the markets don’t really seem to be responding all that much," Carnell said.
US shares were boosted on Wednesday by expectations that the impact of the China-US trade war would be smaller than feared, with the US fiscal policy package potentially outweighing any negative impact.
The Dow Jones industrial average ended 0.61% higher on Wednesday at 26,405.76, its highest close since late January, while the S&P 500 gained 0.13% to 2,907.95.
The Nasdaq composite dropped less than 0.1%, to 7,950.04, pulled down by a fall in Microsoft.
On Thursday, S&P 500 E-mini futures were higher by a hair, at 2,910.5.
The broader market sentiment was at stark odds with a new Reuters poll that showed unanimous agreement that an escalating trade war with China was bad economic policy for the US and could cause economic growth to slow.
The consensus of the poll for US growth showed a slowdown to 2% in the final quarter of 2019, less than half the last reported rate of 4.2%.
Analysts at Citi also cautioned in a note on Thursday that US housing data this week showed signs of weakness despite a headline jump.
Citi said housing starts were strong, but building permits — an indicator of future activity — were at their lowest since May 2017.
"The housing market remains a specific point of weakness in the US economy and while not in focus, it could be important … housing data on Tuesday wasn’t encouraging on net."
The rally in global stocks has been accompanied by falls in US bonds and the Japanese yen. The yield on benchmark 10-year Treasury notes, which on Wednesday touched its highest level since May 18, was at 3.0626% on Thursday, compared with its US close of 3.083%.
This week’s rise in yields comes ahead of what is expected to be a hawkish meeting of the US Federal Reserve next week.
All 113 economists in the Reuters poll forecast the Fed to raise interest rates when it meets on September 25-26. It is expected to follow that up with one more before the end of this year, taking the fed funds rate to 2.25-2.5%. The two-year yield, which is sensitive to market expectations of Fed rate hikes, was at 2.7907% compared with a US close of 2.807% on Wednesday.
The dollar was 0.1% lower against the yen at ¥112.12. The euro was 0.1% stronger against the greenback at $1.1673.
The dollar index, which tracks the dollar against a basket of six major rivals, was down 0.08% at 94.466.
US crude added 0.77% to $71.67 a barrel, on top of a jump Wednesday that came after new data showed US crude inventories fell 2.1-million barrels last week, its fifth weekly drawdown, to 394.1-million barrels.
That was the lowest level since February 2015.
Brent crude was 0.3% higher at $79.67 a barrel.
A weakening dollar continued to push gold higher. Spot gold was trading up 0.2% at $1,205.25 per ounce.