Asian shares hit three-month peak as focus turns to US Fed

Sydney — Asian shares rose to a three-month peak on Tuesday after Wall Street hit record highs amid the hope of progress in China-US trade talks and for another dose of policy stimulus from the Federal Reserve this week.

Japan’s Nikkei led the way with a rise of 0.5% to reach ground last trod a full year ago, while Shanghai blue chips dithered either side of flat.

MSCI’s broadest index of Asia-Pacific shares outside Japan crept up 0.2% to its highest since late July.

E-Mini futures for the S&P 500 extended their gains by 0.1% and Eurostoxx 50 futures held steady.

US President Donald Trump said on Monday he expected to sign part of the trade deal with China ahead of schedule but did not elaborate on the timing.

The US trade representative office said it was studying whether to extend tariff suspensions on $34bn of Chinese goods set to expire on December 28.

“The market appears to be interpreting the improvement in trade talks as a positive sign that the US will suspend its planned tariffs on $160bn of Chinese imports due to take place in December,” said Rodrigo Catril, a senior FX strategist at National Australia Bank.

“This is a big assumption as talks could easily fail again if both parties don’t find a compromise.”

On Wall Street, the S&P 500 gained 0.56% to score a record closing peak, while the Dow rose 0.49% and the Nasdaq 1.01%.

Microsoft climbed 2.46% after winning the Pentagon’s $10bn cloud computing contract, beating out Amazon.com.

Google parent Alphabet slipped in late New York trade after missing analysts’ estimates for quarterly profit even though revenue growth topped expectations.

Hanging on the Fed

The embrace of risk left bonds out in the cold, and yields on two-year Treasury notes hit four-week highs at 1.667%.

Bond investors are still looking forward to a likely rate cut from the Federal Reserve on Wednesday, though they also suspect officials might sound cautious on moving yet further.

“Some/many Fed participants may think/hope that the October cut will be the last of this cycle,” Michelle Girard, chief US economist at NatWest Markets, said in a report.

“However, we expect weaker data over the coming months and quarters will force the Fed to lower rates further. We look for rate cuts in October, December, March, and June, dropping the fed funds target range to 0.75%-1.00% by the middle of 2020.”

That view is even more aggressive than the futures market, which has 50 basis points of cuts priced in by June.

Central banks in Japan and Canada meet this week, with talk the former might ease further if only to prevent an export-sapping bounce in its currency.

The shift from safe havens was working to weaken the yen. The dollar was firm at 108.98 yen, having reached its highest in three months, and was eyeing a top at 109.31.

It fared less well on the euro, which edged up to $1.1097 and eased back on a basket of currencies to 97.753.

Sterling firmed after the EU agreed to a Brexit delay of up to three months, while Prime Minister Boris Johnson lost a vote to force an election on December 12.

The pound was last at $1.2848, well above its low for the month at $1.2193.

Spot gold slipped back to $1,492.21 an ounce, and away from last week’s top around $1,517.

Oil prices were under pressure by signs of rising US crude stockpiles.

Brent crude futures dipped 1c to $61.56, while US crude lost 10c to $55.71 a barrel.

Reuters