Asian stocks touch four-month peak on US-China trade deal hopes

TOKYO (Reuters): Asian stocks edged up to a more than four-month high on Wednesday, lifted by optimism that the United States and China might be able to hammer out a deal to resolve their nearly year-long trade dispute.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose as much as 0.5% to hit its highest level since early October.

Japan’s Nikkei average climbed 1.3% to mark an eight-week high, while South Korea’s KOSPI gained 0.5%.

China’s benchmark Shanghai Composite and the blue-chip CSI 300 advanced 0.4% and 0.6%, respectively, and Hong Kong’s Hang Seng was up 0.6%. Asia took its cue from Wall Street, where the Dow and Nasdaq each rallied about 1.5% overnight on optimism over US-China trade negotiations and a tentative US congressional spending deal to avert another partial government shutdown.

US President Donald Trump said on Tuesday that he could see letting the 1 March deadline for reaching a trade agreement with China slide a little if the two sides were close to a complete deal.

Officials in Washington and Beijing had expressed hopes that a new round of talks which began this week would bring them nearer to easing their seven-month trade war.

“We are currently seeing negative sentiment which had built up over trade concerns and US fiscal issues being unwound,” said Soichiro Monji, Senior Economist at Daiwa SB Investments in Tokyo.

“For risk assets to move purely on optimism, the US-China trade row will need to see some kind of a closure in March. A more permanent solution to avoid a US government shutdown is also necessary. It has to be remembered that we are not there yet.”

US congressional negotiators cobbled together a tentative bipartisan border security deal late on Monday to avert another partial government shutdown. However, Trump on Tuesday expressed displeasure with the agreement and said he had yet to decide whether to support it.

The Cboe Volatility Index, Wall Street’s so-called “fear gauge,” dropped to as low as 14.95, its lowest level in more than four months, overnight.

With risk aversion ebbing for the time being, safe-haven government bonds were sold and their yields rose. The 10-year US Treasury note yield extended an overnight rise and edged up to a near one-week high of 2.694%.

The dollar was on the defensive as investors shifted their money to riskier assets amid the US-China trade-talk hopes.

The dollar index stood at 96.697 after its eight-day winning run came to an end overnight to push it away from a two-month peak.

The euro was a shade higher at $1.1333 having gained 0.5% the previous day, when it bounced from a three-month low of $1.1258.

The dollar was steady at 110.57 yen.

The kiwi dollar jumped as much as 1.4% to a one-week high of $0.6829 after the Reserve Bank of New Zealand held the official cash rate at a record low of 1.75% and emphasised its neutral stance.

The central bank pushed back its forecasts for when it would hike rates to March 2021 from the September 2020 projected in its last statement in November.

In commodities, US crude oil futures were up 1.0% at $53.64 per barrel after rallying 1.3% on Tuesday.

Oil prices surged on Tuesday after OPEC figures showed it cut production sharply in January, and as lead member Saudi Arabia said it would reduce its output in March by an additional 500,000 barrels.