Asian shares climb to four-and-a-half-month highs
Tokyo — Asian stocks advanced to four-and-a-half-month highs on Wednesday as investors bet that Chinese and US trade negotiators would be able to secure a deal to de-escalate their year-long tariff war.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose nearly 1% to reach its highest levels since October 2.
Hong Kong’s Hang Seng gained 1.1% to six-month highs, while Korea’s Kospi and Taiwan's index recovered to levels last seen in early October. Japan’s Nikkei gained 0.75% to two-month highs.
Chinese shares rose 0.4%, extending their run of gains to 18% from their January 4 trough, thanks to inflows of foreign funds.
The gains in Asia topped those in Tuesday’s Wall Street session, where the S&P 500 gained 0.15%, helped by upbeat results from Walmart. The Nasdaq rose 0.19%, logging its seventh consecutive session of gains.
US President Donald Trump said on Tuesday that trade talks with China were going well and suggested he was open to pushing off the deadline to complete negotiations, saying March 1 was not a “magical” date.
US tariffs on $200bn worth of Chinese imports are currently scheduled to rise to 25% from 10% if no trade deal is reached by March 1.
Investors now expect Trump to meet Chinese President Xi Jinping in March, likely after China’s annual congress meeting starting from March 5, to strike a deal, or secure a “memorandum of understanding”.
“They will likely agree on China importing a larger amount of natural gas and agricultural products,” said Nobuhiko Kuramochi, chief strategist at Mizuho Securities, adding that China will also “open up a part of its domestic financial services and possibly some manufacturing sectors”.
But he predicted China “will not back down on so-called structural issues. The two countries may perhaps agree to set up a body to continue discussing those issues. Markets are already in the middle of pricing in these things.”
The two countries started a new round of talks to resolve their trade war on Tuesday, and sessions at a higher level are planned later this week, with Chinese Vice-Premier Liu He visiting Washington on Thursday and Friday.
Behind Fed’s turnaround
Investors are also looking to the release later on Wednesday of minutes from the Federal Reserve’s January policy-setting meeting, where policymakers effectively signalled no further rate hikes and possible tweaks to its balance sheet normalisation.
New York Fed president John Williams told Reuters he was comfortable with the level US interest rates are at now and that he sees no need to raise them again unless economic growth or inflation shifts to an unexpectedly higher gear.
But he also suggested the balance sheet roll-off would continue at least into next year at its current pace, dampening speculation that the Fed could end the process in 2019.
In the currency market, the euro firmed to $1.1350, bouncing back from Friday’s three-month low of $1.1234, due to improving risk appetites. The dollar gained 0.2% to ¥110.80, edging near Thursday’s seven-week peak of ¥111.13.
The British pound soared to $1.3063 on Tuesday, gaining 1.09%, a move some traders attributed to rising hopes Prime Minister Theresa May will make progress in seeking changes to her Brexit deal with the EU. It last stood at $1.3070.
The Chinese yuan rose more than 0.5% to 6.7243 to the dollar, its highest level in about three weeks after Bloomberg reported on Tuesday that the US was seeking to secure a pledge from China that it will not devalue its yuan currency as part of a trade deal.
The yuan’s strength also sparked bids for Asian currencies, with the Thai baht hitting five-year highs.
Oil prices hovered near 2019 highs, supported by Opec-led supply cuts and US sanctions on Iran and Venezuela, but further gains were capped by soaring US production and the expectation of an economic slowdown.
US West Texas Intermediate (WTI) crude oil futures were at $56.01 a barrel, down 8c from their last settlement, but not far off their 2019 high of $56.33 reached earlier this week.
International Brent crude futures stood at $66.33 a barrel, having hit a three-month high of $66.83 a barrel earlier this week.
Gold rose 0.4% to 10-month highs of $1,346.50, extending its rally sparked in part by signs that the world's central banks are turning dovish.
The metal has also attracted safety bids on worries about Brexit, said Tatsufumi Okoshi, senior commodity economist at Nomura Securities.
Palladium rose 1.4% to yet another record high, having risen about 19% so far this year, on the expectation of increased demand due to stricter emissions standards.