Asian shares race to six-month high on hopes of tariff relief

Employees of the Tokyo Stock Exchange (TSE) work at the bourse in Tokyo Japan, 11 October 2018 – Reuters

TOKYO (Reuters): Asian shares vaulted to six-month highs yesterday, surpassing their July peaks, as hopes that Washington may roll back some of the tariffs it has imposed on imports from China shored up optimism on the global economic outlook.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.5% to reach levels last seen in early May, led by gains in Chinese shares.

The CSI300 of mainland Chinese shares jumped 1.3% to move above double-tops marked in the past two months to hit their highest levels since late April, also helped by the People’s Bank of China cutting a medium-term lending rate.

Taiwanese shares .TWII gained 0.4% to near three-decade highs while Japan’s Nikkei rose 1.34% to a one-year peak after a market holiday on Monday.

The bright mood in Asia is seen extending into the European morning, with pan-European Euro Stoxx 50 futures up 0.3%, German DAX futures 0.21% higher, and FTSE futures gaining 0.49%.

US S&P500 futures gained 0.2% in Asia after the Financial Times reported that the US is considering rolling back levies on $ 112 billion of Chinese imports, which were introduced at a 15% rate on 1 September.

China is pushing US President Donald Trump to remove more tariffs imposed in September as part of a ‘phase one’ US-China trade deal, expected to be signed later this month, people familiar with the negotiations said on Monday.

“There may have been some expectations that the US may postpone the remaining tariffs, which are due to kick in on 15 December. But if it goes further by rolling back existing tariffs, that would not only benefit the economy but would also make the truce seem more permanent,” said Yukino Yamada, senior strategist at Daiwa Securities.

Already on Monday on Wall Street, the S&P 500 gained 0.37% to a record high of 3,078.27 while the Dow Jones and the Nasdaq also clinched all-time highs on hopes of the phase one deal on trade.

Beijing and Washington spoke of progress in trade talks on Friday and US Commerce Secretary Wilbur Ross said licenses for US companies to sell components to China’s Huawei Technologies Co will come “very shortly.”

“Economic uncertainties are receding. That means those who had held off their activities, both in the real economy and financial markets, are getting active,” said Masaru Ishibashi, joint general manager of trading at Sumitomo Mitsui Bank.

Chinese President Xi Jinping said yesterday the global community needs to bring down trade barriers.

US employment data released on Friday showed strong job gains despite the drag from a strike at General Motors, offering some assurance that consumers would continue to support the slowing economy.

“The data suggests the US is almost in a full employment. More importantly those strong numbers came after three rate cuts by the Fed,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

“When the Fed did precautionary easing in the past – after Mexico crisis in 1994 and AsiaRussian crisis in 1997-98 – a rally in stock prices followed. No wonder money is flowing to risk assets now,” he said.

The next focus on the US economic front is US non-manufacturing survey due later yesterday, with economists expecting a rebound in business sentiment from a three-year low.

Bonds are losing some of their appeal and the yield on benchmark 10-year notes rose back to 1.805% compared to last week’s low of 1.670%.

In the currency market, the dollar gained 0.2% on the yen to 108.80, extending its recovery from 107.89 touched on Friday.

Trade optimism kept the Chinese yuan near its highest levels since mid-August, with the onshore yuan at 7.0162 per dollar, up 0.2% on the day.

The currency maintained gains even after China’s central bank cut its one-year medium-term lending facility (MLF) rate by five basis points, for the first time since early 2016.

The yuan shrugged off the CaixinMarkit services purchasing managers’ index (PMI) showing China’s services sector activity expanded at its slowest pace in eight months in October.

The euro was little changed at $ 1.1126, off last week’s high of $ 1.1175.

The Australian dollar tacked on 0.2% to $ 0.6900 after the nation’s Central Bank held interest rates steady, as expected, as it gauged the impact of the three cuts already delivered this year.

Oil prices firmed, staying near their highest levels since late September, buoyed by an improved outlook for crude demand as better-than-expected US jobs growth added to market hopes a preliminary US-China trade deal would be reached this month.

US West Texas Intermediate (WTI) crude traded at $ 56.62 per barrel, up 0.14% after having hit a six-week high of $ 57.43 on Monday.

International benchmark Brent gained 0.23% to $ 62.27 per barrel.

Rising economic optimism dented gold, which fell 0.47% to $ 1,503 per ounce.