Chinese shares charge ahead on US tariff respite

Sydney — A surge in Shanghai shares led Asia higher on Monday after US President Donald Trump confirmed he would delay a planned hike in tariffs on Chinese imports as talks between the two sides made “substantial progress”.

Chinese blue chips jumped 3.5% to territory last trod in mid-June. That brought gains this year to 20%, helped in part by Beijing’s efforts to pump new credit into the financial system.

The Australian dollar, a liquid proxy for China investments, got a mild lift from the news and the dollar touched a fresh seven-month low on the yuan.

MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.3% to the highest since October, and is up 10 percent for the year so far.

Japan’s Nikkei climbed 0.5% to levels last seen in mid-December. E-mini futures for the S&P 500 edged up 0.2%, while spread-betters pointed to opening gains for the major European bourses.

Trump on Sunday tweeted he would push back the March 1 deadline for higher tariffs and looked forward to a meeting with Chinese President Xi Jinping when a deal was sealed.

US and Chinese negotiators were discussing the thorny issue of how to enforce a potential trade deal on Sunday after moving ahead on structural issues, a source said.

Trump tweeted progress had been made on intellectual property, technology transfers, agriculture, services and currencies.

“The high frequency engagement between Beijing and Washington at a senior level implies that both sides are looking for some form of settlement,” said Tai Hui, chief market strategist Asia Pacific at JP Morgan Asset Management.

“I think the market has been moving towards this view in recent weeks, as shown by the strong performance in China A Shares and Asian equities. Hence, the latest news may not offer a significant boost.”

Testing Powell’s patience

Hopes for an end to the trade standoff had helped the S&P 500 post its highest close since November 8 on Friday, while the Dow and Nasdaq boasted a ninth consecutive week of gains.

Stocks have also been underpinned by a dovish shift from the US Federal Reserve, which has set aside rate hikes for now. Fed chair Jerome Powell will testify on US monetary policy on Tuesday and Wednesday.

“Expect him to emphasise patience, stating that any more hikes this year would likely require some pickup in inflation,” wrote analysts at TD Securities in a note.

“On the balance sheet, he will not front-run the FOMC [Federal open market committee] and announce anything new, but repeat that the committee expects the runoff could end later this year.”

In currencies, the trade news had already been largely priced in and left the dollar little moved at ¥110.66. The euro was flat at $1.1340 and still well within the $1.1213-$1.1570 trading range that has held since mid-October.

Against a basket of currencies the dollar was holding steady at 96.473.

Sterling was idling at $1.3065 as markets awaited some clarity on where Brexit talks were heading.

Prime Minister Theresa May put off a vote on her Brexit deal until as late as March 12 — just 17 days before Britain is due to leave the EU — setting up a showdown this week with MPs who accuse her of running out the clock.

The Telegraph reported May was considering whether to delay Britain’s exit for up to two months.

In commodity markets, spot gold edged up a touch to $1,331.00/oz.

Oil prices were near their highest since mid-November, despite record output from the US.

US crude was last down 21c at $57.05 a barrel, while Brent crude futures lost 31c to $66.81.

Reuters