Asian shares benefit from cautious optimism around trade deal

Tokyo/Hong Kong — Stock markets in Asia gained on Thursday on hopes that China and the US may soon seal a preliminary deal to end their 17-month trade war, but conflicting signals from US President Donald Trump kept a lid on investor optimism.

Hopes that an agreement would soon emerge stemmed from a Bloomberg report on Wednesday that the two sides were close to a “phase one” deal, and Trump’s remarks that the talks were going “very well” after he had earlier said it might take until late 2020 to reach an accord.

“My base case scenario is the two sides reach some deal. The pressure for a deal is immense simply because of the economic slowdown in both countries,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors in Sydney.

“However, we see increased volatility because policy uncertainty has become a constant.”

As investors tilted towards optimism, riskier assets rose and safe havens such as the Japanese yen weakened.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.4%. Japan’s Nikkei stock index gained 0.7%, Australian shares were up 1%, and in China, both blue chips and Hong Kong’s Hang Seng index rose 0.3%.

US stock futures fell 0.04% on Thursday in Asia after the S&P 500 gained 0.63% on Wednesday.

Analysts warn that more market turbulence is possible given Sino-US negotiations are very fluid.

If China and the US cannot reach an agreement soon, the next important date to watch is December 15, when Washington is scheduled to impose even more tariffs on Chinese goods.

Traders are also bracing for the closely watched US non-farm payrolls report due on Friday to determine how well the US economy is holding up amid a global slowdown.

Trading will likely be thin and there will be little money chasing these unpredictable trade headlines as the year-end approaches, said Robert Carnell, chief economist and head of research for Asia-Pacific at ING in Singapore.

“The motivation now (for investors) is not to lose any money if you’re under water, and if you’ve made money, keep it that way,” he said. “If you haven’t positioned yet you are not going to in the next couple of weeks.”

The yen traded flat at 108.85/$, ceding some of the previous day’s gains as positive signs about the trade dispute hurt demand for safe-haven currencies.

The yield on benchmark 10-year Treasury notes fell slightly to 1.7603% in Asia, retracing some of the gains made in the previous session.

US crude edged 0.22% lower to $58.21 a barrel on Thursday as a 3% rally overnight showed signs of fading.

However, prices could be supported if Opec and fellow producers including Russia approve deeper crude output cuts when they meet in Vienna on Thursday and Friday.

Reuters