Hope of breakthrough in US-China talks lift Asian shares

Tokyo — Most Asian shares were propped up on Tuesday by the hope that Washington and Beijing may be inching towards a trade deal and that the US Federal Reserve would halt its tightening if economic growth slows further.

Japan’s Nikkei rose 0.9% while MSCI’s broadest index of Asia-Pacific shares outside Japan ticked up just 0.1%, although it was dragged down by falls in China and Taiwan.

On Wall Street, the S&P 500 gained 0.7% on Monday following 3.4% surge on Friday, with Amazon.com Inc and Netflix leading the rally.

Gains in tech names allayed some fears, sparked by Apple’s sales warnings last week, that the high-flying sector is starting to be hurt by the China-US trade war.

“Market pessimism has been rolled back, partly helped by hopes as talks between China and the US are under way. But many investors are still trying to play it safe and it is yet to be seen whether the recovery continues, or ends up as a short-term relief rally,” said Masanari Takada, cross-assets strategist at Nomura Securities.

US  commerce secretary Wilbur Ross predicted on Monday that Beijing and Washington could reach a trade deal that “we can live with” as dozens of officials from the world’s two largest economies resumed talks in a bid to end their trade dispute.

China’s foreign ministry said Beijing had the “good faith” to work with the US to resolve trade frictions, but many analysts doubt the two sides can reach a comprehensive agreement on all of the divisive issues before a March deadline.

Investors also continued to buy battered stocks in response to strong US job data on Friday and comments by Fed  chair Jerome Powell that he was aware of the risks and would be patient and flexible in policy decisions this year.

Powell’s comments have eased market concerns that the US central bank might ignore signs of an economic slowdown and stick to its script of two rate hikes this year.

“Various concerns markets had earlier are receding for now. Still, there’s no denying that US earning momentum is slowing,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities.

“Ultimately we need to see whether upcoming earnings reports can dispel market concerns.”

Analysts estimate S&P 500 companies will increase their fourth-quarter earnings per share by 15% from a year earlier, down from 20% growth seen three months ago, according to Refinitiv IBES data.

The estimate for 2019 profit growth has fallen to about 6.9% from 10.2%. The picture is murkier for tech firms, whose earning growth estimates have fallen to 2.7% from 8.5%.

“There have long been suspicions that US tech companies might be overvalued. And in a way Apple game markets confirmed,” said Kazushige Kaida, head of forex at State Street.

“There are worries more tech companies may issue profit warnings, which means there will remain a pressure on US hi-tech shares, and on the dollar/yen.”

The dollar traded at ¥108.78, struggling to extend gains after having recovered to its levels before its flash crash last week.

The US dollar is losing momentum as investors wind back expectations of rate hikes and a future widening in its yield advantage.

But conditions in most other developed economies are not much to write home about, either, potentially limiting the upside for other major currencies.

The euro slipped 0.2% to $1.1450. The pound dipped 0.1% to $1.2769.

British and European officials are discussing the possibility of extending Britain’s formal notice to withdraw from the EU amid fear a Brexit deal will not be approved by March 29, The Daily Telegraph reported, citing unidentified sources.

In contrast, the Canadian dollar hit one-month highs, having gained 2.7% in the past five days on gains in oil prices and on speculation the Bank of Canada will stick this week to its plan to raise interest rates to a neutral range.

It last stood at C$1.3284 to the US dollar.

Emerging-market currencies also benefited from a weak dollar, with MSCI emerging-market currency index rising to levels last seen in late July.

The 10-year US treasuries yield bounced back to 2.698%, from Friday’s low of 2.543%, a trough last seen almost a year ago. Still, that is more than 50 basis points below its October peak of 3.261%.

Fed funds rate futures now price in a slim chance of a rate cut in 2019.

Oil prices also rebounded further from one-and-a-half-year lows reached in December, drawing support from a Wall Street Journal report that Saudi Arabia is planning to cut crude exports to about 7.1-million barrels a day by the end of January.

Opec and its allies are trying to rein in a surge in global supply, driven mostly by the US, where production surpassed 11-million barrels a day in 2018. Record high crude oil production has pushed up US inventories.

US West Texas Intermediate (WTI) crude futures rose 0.5% to $48.77 a barrel.

Reuters