Asian markets rise ahead of US-China trade talks
Progress in trade talks and stimulus from the European Central Bank helps counter worries about a global slowdown
Asian stocks advanced on Friday as hints of progress in US-China trade talks and aggressive stimulus from the European Central Bank helped counter worries about a global economic slowdown.
MSCI’s broadest index of Asia-Pacific shares outside Japan ticked up 0.3% though mainland China and South Korea were closed for public holidays. Japan’s Nikkei rose 1.0% to four-month highs.
“Risk assets should find further support from accommodative policies, which are set to remain in vogue for some time, and not just in Europe as seen in the global easing trend,” said Esty Dwek, head of global market strategy at Natixis in Geneva, Switzerland.
“Nonetheless, we believe that trade uncertainty and growth concerns will not vanish, so any reprieve on either subject will be welcome. We also believe that some earnings growth will be needed for equities to grind higher,” she said.
The US on Thursday welcomed China’s renewed purchases of US farm goods while maintaining the threat of US tariff hikes as the world’s two largest economies prepared for talks aimed at breaking their trade war impasse.
Trump said he preferred a comprehensive trade deal with China but did not rule out the possibility of an interim pact, even as he said an “easy” agreement would not be possible.
Investors bet optimism will prevail in the near future though most economists in a new Reuters poll believed the trade dispute will worsen or at best stay the same over the coming year.
The S&P 500 closed within striking distance of its all-time closing high, rising 0.29% to 3,009.57, a near record closing high of 3,024.50 marked in late July.
Philadelphia semiconductor shares index hit an all-time high while MSCI ACWI also came near this year’s high after seven straight days of gains by Thursday.
Sentiment found modest support from Trump’s planned tax overhaul aimed at middle-income households next year.
The European Central Bank (ECB) delivered bigger-than-expected stimulus, cutting interest rates by 0.10 percentage point to minus 0.50%, promising that rates would stay low for longer and restarting bond purchases of €20bn a month from November.
The resumption of quantitative easing had been seen as a close call and helped to boost risk assets.
But the euro quickly lost steam and European bond yields also rose as profit-taking set in.
ECB president Mario Draghi stepped up his rhetoric in calling for governments to spend their way out of a slowdown, highlighting the limitations of monetary policy and also fanning expectations of fiscal spending down the road.
The euro stood at $1.10645, having risen 0.5% on Thursday and staying near two-week high of $1.10875 hit in US trade.
Rising risk appetite pushed the yen down to six-week low of 106.265/$.
The 10-year German Bund yields also rose back to minus 0.521%.
That also helped to lift the yield on 10-year US. Treasuries to as high as 1.801%, its highest level since early August.
Fed funds rate futures price in an interest-rate cut of 0.25 percentage point by the Fed next week but have effectively priced out any chance of a larger cut.
The Fed will announce its policy on Wednesday, followed by the Bank of Japan (BOJ) on Thursday.
Sources told Reuters the BOJ is leaning towards standing pat next week if markets are calm, but is brainstorming ways to deepen negative interest rates at minimal cost.
“I think a rally in stock prices will run out of steam soon. It's typical buy-on-rumour-sell-on-fact trade on central bank stimulus and will be over by the Fed and the BOJ’s meetings,” said Tatsushi Maeno, senior strategist at Okasan Asset Management.
“People also seem to think there will be a deal between China and the States soon but you never know when suddenly Trump does an about-face. We just saw that in May and August,” he said.
Trump unveiled a hike in tariffs on $200bn worth of Chinese imports in early May and announced another 10% tariff on the remaining $300bn imports from China in early August. US stock prices were at record levels on both occasions.
Oil prices were on course to post weekly losses, on continued worries about weakening demand and on speculation Trump may ease sanctions on Iran after his former national security adviser John Bolton, an Iran hawk, left the White House earlier this week.
Brent crude futures fell 0.2% to $60.28 a barrel while US West Texas Intermediate crude lost 0.2% to $54.99.