Asian shares close to July high amid growing hope of a trade deal

Tokyo — Asian shares approached their July peak on Tuesday on signs the US and China are edging closer to a truce in their trade war and on optimism the US economy is poised for solid, consumer-driven growth.

MSCI’s broadest index of Asia-Pacific shares outside Japan ticked up 0.1% after hitting a four-month high the previous day.

China’s mainland shares were little changed, while Japan’s Nikkei rose 1.34% to one-year high after a market holiday on Monday.

On Wall Street, the S&P 500 gained 0.37% to a record high of 3,078.27 on Monday while the Dow Jones and the Nasdaq also clinched highs.

In Europe, shares rallied more than 1%, with many reaching their highest level since January 2018. The Stoxx 600 index of small, mid-sized and large companies across Europe surged to highs last seen in July 2015.

US S&P 500 futures gained a further 0.2% in Asia after the Financial Times reported on Tuesday that the US is considering rolling back levies on $112bn of Chinese imports, which were introduced at a 15% rate on September 1.

The story came after Beijing and Washington spoke of progress in trade talks on Friday and US commerce secretary Wilbur Ross said licences for US companies to sell components to China’s Huawei Technologies will come “very shortly”.

“Economic uncertainties are receding. That means those who had held off their activities, both in the real economy and financial markets, are getting active,” said Masaru Ishibashi, joint GM of trading at Sumitomo Mitsui Bank.

Chinese President Xi Jinping said on Tuesday the global community needs to bring down trade barriers.

US employment data released on Friday showed strong job gains despite the drag from a strike at General Motors, offering some assurance that consumers would continue to support the slowing economy.

“The data suggest the US is almost in a full employment. More importantly those strong numbers came after three rate cuts by the Fed,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

“When the Fed did precautionary easing in the past — after Mexico crisis in 1994 and Asia/Russian crisis in 1997-98 — a rally in stock prices followed. No wonder money is flowing to risk assets now,” he said.

Bonds are losing some of their appeal and the yield on benchmark 10-year notes rose back to 1.799% compared to last week’s low of 1.670%.

In the currency market, the dollar gained to ¥108.60, extending its recovery from 107.89 touched on Friday.

Trade optimism kept the Chinese yuan near its highest levels since mid-August, with the onshore yuan at 7.0259 a dollar, up slightly on the day.

The currency maintained gains even after China’s central bank cut its one-year medium-term lending facility rate by five basis points, for the first time since early 2016.

The currency shrugged off the Caixin/Markit services purchasing managers’ index (PMI) showing China’s services sector activity expanded at its slowest pace in eight months in October.

The euro changed hands at $1.1125, off last week’s high of $1.1175.

The Australian dollar traded at $0.68805, staying near one-week low after a dire set of retail sales numbers released on Monday suggested the economy was still struggling despite three cuts in interest rates. Still, that has did little to change market expectations that the Reserve Bank of Australia is expected to hold fire at its interest rate decision on Tuesday.

Oil prices ticked lower in Asia but stayed not far from their highest levels since late September, buoyed by an improved outlook for crude demand as better-than-expected US jobs growth added to market hopes a preliminary US-China trade deal would be reached in November.

US West Texas Intermediate (WTI) crude traded at $56.42 a barrel, down 0.21% after having hit a six-week high of $57.43 on Monday.

Reuters