Asia shares cheered by US-China trade progress

Wayne Cole, Reuters

Posted at Oct 14 2019 10:38 AM

An investor walks past an electronic board displaying live market data at a stock broker's office in central Bangkok, Thailand. Chaiwat Subprasom, Reuters/file

SYDNEY -- Asian share markets pushed higher on Monday as signs of progress in the Sino-US trade standoff whetted risk appetites, while pressuring safe-haven bonds and the yen.

Liquidity was lacking, however, with Japan off and a partial market holiday in the United States for Columbus Day. MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.5 percent.

Australia's main index gained 0.9 percent and South Korea firmed 1.3 percent.

While Tokyo was on holiday, Nikkei futures were trading at 22,105 compared with a Friday close of 21,798 in the Nikkei index. E-Mini futures for the S&P 500 also added another 0.36 percent after jumping on Friday.

Sentiment had been boosted when US President Donald Trump outlined the first phase of a deal to end a trade war with China and suspended a threatened tariff hike, though officials on both sides said much more work needed to be done. The emerging deal, covering agriculture, currency and some aspects of intellectual property protections, would represent the biggest step by the two countries in 15 months.

"The substance is more in the vein of an extension of the truce – though that was the best the market could have hoped for," said Tapas Strickland, a director of economics and markets at National Australia Bank.

"Still, it is unlikely the 'partial deal' will do much to give certainty to firms investment and hiring decisions in the US or elsewhere," he cautioned. "As such it is still likely trade uncertainty will weigh on economic activity, and the Fed will cut rates to ward-off the headwinds."

Futures imply around a 72 percent chance the Federal Reserve will cut interest rates at its meeting later this month.

BIG WEEK FOR BREXIT

The progress on trade was still enough to slug safe-haven bonds with yields on US 10-year Treasury notes climbing 23 basis points last week to stand at 1.74 percent.

The yield curve also steepened as short-term rates were held down by news the Fed would start buying about $60 billion per month in Treasury bills to ensure "ample reserves" in the banking system.

The rally in risk assets saw the yen ease across the board and the dollar was steady at 108.40 early on Monday after hitting a 10-week top around 108.61 on Friday.

The dollar fared less well elsewhere, partly due to a jump in sterling, and was last at 98.431 against a basket of currencies after losing 0.5 percent last week.

The dollar also dipped on the Chinese yuan to stand at 7.0868.

The pound was trading cautiously at $1.2608 having surged to a 15-week high around $1.2705 on Friday on optimism Britain could reach a deal on Brexit with the European Union.

However, officials from Downing Street and the EU said on Sunday a lot more work would be needed to secure an agreement on Britain's departure from the bloc.

The two sides will hold more talks on Monday ahead of a summit of EU leaders in Brussels on Thursday and Friday.

The general improvement in risk sentiment saw spot gold ease another 0.4 percent to $1,483.90 per ounce.

Oil prices steadied after jumping on reports an Iranian state-owned oil tanker had been attacked in the Red Sea.

Investors were also anxiously watching Turkey's incursion into Syria as the White House threatened to impose heavy sanctions on Ankara.

Brent crude futures were up 8 cents at $60.59, while U.S. crude rose 9 cents to $54.79 a barrel.