Asian shares climb to 14-week highs on hopes US, China getting close to trade deal

People walk under an electronic board showing stock information at the Shanghai Stock Exchange in Shanghai, China 

SHANGHAI (Reuters): Asian shares surged on Monday, with a broad regional gauge hitting more than 14-week highs, as growing optimism over US-China trade talks and upbeat US job data boosted global investors’ appetite for riskier assets.

MSCI’s broadest index of Asia-Pacific shares outside Japan jumped 1.08%, touching its highest level since July 24, and on track for its biggest one-day gain since 11 October.

Equity markets in Europe were set to follow Asia higher, with pan-region Euro Stoxx 50 futures up 0.53%, German DAX futures 0.49% higher and FTSE futures rising 0.41% in early trading.

In Asia, Hong Kong’s Hang Seng rose 1.36%, and Seoul’s Kospi added 1.43%. In mainland China, blue chips were up 0.72%, and Australian shares were 0.27% higher.

Markets in Japan were closed for a holiday.

The United States and China both said on Friday that they had made progress in talks aimed at defusing their protracted trade war, and US officials said a deal could be signed this month.

But in a note to clients, analysts at National Australia Bank sounded a note of caution.

“As much as the US-China trade updates continue to point to a Phase 1 deal looking like a certainty, the contentious issues on whether the US will cancel the planned December tariffs and remove some of the current tariffs in line with China’s demands remains an unknown and if the issue is not resolved then a deal could easily collapse,” they said.

In comments on Friday, White House economic adviser Larry Kudlow said tariffs set to kick in on 15 December, which would cover Chinese imports such as laptops, toys and electronics, would remain on the table, and the decision whether to cancel them would be made by US President Donald Trump.

Any lingering uncertainty over the outlook for trade talks was not enough to keep the S&P 500 from gaining 0.97% and the Nasdaq rising 1.13% to fresh record closing highs on Friday.

The Dow Jones Industrial Average rose 1.11%.

On Monday, US S&P 500 e-mini stock futures ESc1 were up 0.2% at 3,067.8.

US job growth slowed less than expected in October and hiring in the prior two months was stronger than previously estimated, data from the Labour Department showed on Friday.

Those numbers followed a private survey of manufacturers in China that showed better-than-expected factory activity in October.

Rob Carnell, Asia-Pacific chief economist at ING in Singapore, said some market optimism was “probably justified” in the wake of the positive data.

“Everybody had been looking for a much worse number and it didn’t materialise, so some bounce from that was entirely plausible and reasonable.”

But he added that continued uncertainty over trade talks and less room for monetary easing by global central banks made for a murky outlook.

“It’s difficult to see why you wouldn’t be at least thinking, there is a ‘good profit-taking opportunity right now’ and positioning for a slightly worse outcome,” he said.

While cash treasuries were not trading due to the Japanese market holiday, US 10-year Treasury futures were down 0.11% amid the broadly bullish market mood.

The implied yield on the 10-year Treasury futures contract expiring in December TYZ9 was 1.65%.

Oil prices, which had surged on hopes for a US-China trade deal, pulled back on Monday. Global benchmark Brent crude was off 0.57% at $61.34 per barrel and U.S. West Texas Intermediate crude was 0.55% lower at $55.89.

In the currency market, the dollar was up 0.06% against the yen at 108.23, and the euro was up 0.02% to buy $1.1167.

The dollar index, which tracks the greenback against a basket of six major rivals, was down 0.02% at 97.222.

Those small moves contrasted with a 1.42% jump in the South African rand against the dollar. The currency rallied on relief that Moody’s maintained South Africa’s investment-grade rating on Friday, though the agency cut its outlook on the rating to “negative”.

China’s yuan also strengthened, with the positive market tone around trade talks helping it to rise to a 2-1/2 month high against the dollar. It was last up 0.15% at 7.0267 per dollar.