TOKYO, Feb 20 — Asian stocks advanced to 4.5-month highs today as investors bet that Chinese and US trade negotiators would be able to secure a deal to de-escalate their year-long tariff war.
MSCI's broadest index of Asia-Pacific shares outside Japan rose as much as 1.1 per cent to mark its highest levels since October 2. It last traded up 0.9 per cent on the day.
Financial spread-betters expected a flat opening in Europe, with London's FTSE seen 2 points lower at 7,177, Frankfurt's DAX 1 point lower at 11,308 and Paris CAC up 1 point at 5,161.
Hong Kong's Hang Seng gained as much as 1.3 per cent to six-month highs, while Korea's Kospi and Taiwan's index recovered to levels last seen in early October. Japan's Nikkei added 0.6 percent to two-month highs.
China's bluechip shares rose 0.3 per cent, extending their run of gains to 18 per cent from their January 4 trough, thanks to inflows of foreign funds.
The gains in Asia topped those in yesterday's Wall Street session, where the S&P 500 tacked on 0.2 per cent, helped by upbeat results from Walmart. The Nasdaq also rose 0.2 per cent, logging its seventh straight session of gains.
US President Donald Trump said on Tuesday that trade talks with China were going well and suggested he was open to pushing off the deadline to complete negotiations, saying March 1 was not a “magical” date.
US tariffs on US$200 billion (RM815.6 billion) worth of Chinese imports are currently scheduled to rise to 25 per cent from 10 per cent if no trade deal is reached by March 1.
Investors now expect Trump to meet Chinese President Xi Jinping next month, likely after China's annual congress meeting starting from March 5, to strike a deal, or secure a “memorandum of understanding.”
“They will likely agree on China importing a larger amount of natural gas and agricultural products,” said Nobuhiko Kuramochi, chief strategist at Mizuho Securities, adding that China will also “open up a part of its domestic financial services and possibly some manufacturing sectors.”
But he predicted China “will not back down on so-called structural issues. The two countries may perhaps agree to set up a body to continue discussing those issues. Markets are already in the middle of pricing in these things.”
The two countries started a new round of talks to resolve their trade war yesterday, and sessions at a higher level are planned later this week, with Chinese Vice Premier Liu He visiting Washington tomorrow and Friday.
Behind Fed's turnaround
Investors are also looking to the release later today of minutes from the Federal Reserve's January policy-setting meeting, where policymakers effectively signalled no further rate hikes and possible tweaks to its balance sheet normalisation.
New York Fed President John Williams told Reuters he was comfortable with the level US interest rates are at now and that he sees no need to raise them again unless economic growth or inflation shifts to an unexpectedly higher gear.
But he also suggested the balance sheet rolloff would continue at least into next year at its current pace, dampening speculation that the Fed could end the process this year.
In the currency market, the euro was little changed at US$1.1380, but ahead of Friday's three-month low of US$1.1234, on the back of improving risk appetites. The US dollar gained 0.2 per cent to 110.84 yen, edging near Thursday's seven-week peak of 111.13 .
The British pound soared to US$1.3063 yesterday, gaining 1.1 per cent, a move some traders attributed to rising hopes Prime Minister Theresa May will make progress in seeking changes to her Brexit deal with the European Union. It last stood at US$1.3053.
The Chinese yuan rose as much as 0.6 per cent against the dollar, its biggest intra-day gain in more than a month, after Bloomberg reported yesterday that the United States was seeking to secure a pledge from China that it will not devalue its yuan currency as part of a trade deal.
The yuan's strength also sparked bids for Asian currencies, with the Thai baht hitting five-year highs.
Oil prices hovered near 2019 highs, supported by Opec-led supply cuts and US sanctions on Iran and Venezuela, but further gains were capped by soaring US production and expectations of an economic slowdown.
US West Texas Intermediate (WTI) crude oil futures were at US$56.16 per barrel, up 0.1 per cent on the day and not far off their 2019 high of US$56.33 hit earlier this week.
International Brent crude futures stood at US$66.32 per barrel, having hit a three-month high of US$66.83 per barrel earlier this week.
Gold rose 0.4 per cent to 10-month highs of US$1,346.73, extending its rally sparked in part by signs that the world's central banks are turning dovish.
The yellow metal has also attracted safety bids on worries about Brexit, said Tatsufumi Okoshi, senior commodity economist at Nomura Securities.
Palladium rose as much as 1.4 per cent to yet another record high, having risen about 19 per cent so far this year, on expectations of increased demand due to stricter emissions standards. — Reuters
