Asian shares rise on hope for US-China talks, but Trump pessimism caps gains

Tokyo — Asian stocks rose on Tuesday, supported by hope that Beijing and Washington will dial back trade hostilities, though comments from US President Donald Trump about the yuan and Federal Reserve policy capped gains and weighed on the dollar.

In an interview with Reuters on Monday, Trump said China was manipulating its currency to make up for having to pay tariffs imposed by Washington on some imports from China.

This kept global trade conflict concerns alive and dented some of the market optimism ahead of upcoming US-China trade talks.

He also said he believed the euro was being manipulated.

MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.6%. Australian stocks lost 0.9%, South Korea’s Kospi gained 0.3% and Japan’s Nikkei fell 0.1%.

Wall Street’s major indices rose on Monday on optimism over trade talks between the US and China, though they fell from session highs after Trump’s comments.

The immediate focus was on the lower-level trade talks due to start this week between the US and China. Speculation that the talks might help ease trade tension has shored up the broader equity markets over the past few sessions.

Market optimism was tested, however, after Trump said he did not “anticipate much” from the discussions.

“Given the little progress made on the US-China negotiations in the past six months, investors’ expectations are still low,” wrote Tai Hui, global market strategist at JPMorgan Asset Management.

“Ongoing negotiation is good news, and that’s what the market is riding on at this stage, but a sustainable agreement to end this tension still seems unlikely at this point.”

Chinese shares rose, with the Shanghai composite index climbing more than 1%, helped by bargain hunting of consumer and healthcare firms after their recent slump.

In currency markets, the dollar came under pressure after Trump reiterated his displeasure at the Fed’s rate hikes, saying the central bank should do more to help him boost the US economy.

“The Fed looked to have strengthened its hawkish stance at the August policy meeting. But since then, the side-effects of the US-China trade war have started to appear, and Republicans struggled to win a special election in Ohio,” said Daisuke Uno, chief strategist at Mitsui Sumitomo Bank in Tokyo.

“Against such a background, Trump’s latest jab at the Fed appears to have become stronger compared to the last time (in late July).”

The dollar index against a basket of six major currencies was down 0.35% at 95.549, extending losses from the previous day.

The euro brushed a 12-day high of $1.1544, stretching its gains after climbing about climbing about 0.35% overnight.

The US currency touched ¥109.775, its lowest since late June.

The onshore Chinese yuan rose to as high as 6.828 per dollar, its strongest since August 9. The currency was on track for its fourth session of gains, pulling further away from 6.934, its weakest since January 2017 marked last week.

China’s yuan weakened to a 19-month low against the dollar earlier in August amid concern about the country’s economic growth, and about the China-US trade war, and because of a broad rally by the dollar.

The yuan has since pulled back slightly from the trough, with the People’s Bank of China taking steps perceived by investors as signalling authorities would not allow the currency to keep depreciating indefinitely.

The yield on the 10-year US Treasury note was near a six-week low of 2.815% plumbed overnight in the wake of Trump’s interest rate comments.

Oil prices were mixed after gaining the previous day, when investors grew more concerned about an expected fall in supply from Iran due to US sanctions.

US crude futures were up 0.33% at $66.65 a barrel while Brent dipped 0.1% to $72.12 a barrel.

Reuters