HONG KONG, Sept 5 — Most Asian equities and currencies rallied today, building on the previous day’s advance as investors were cheered by a number of positive developments on trade, Hong Kong and Europe.
Markets were already on an upward trajectory after the leader of Hong Kong yesterday withdrew a controversial extradition bill that had sparked months of sometimes violent protests in the financial hub.
But the good news kept coming as the day wore on, with news that Italy had formed a new moderate, pro-European government, while British MPs moved closer to passing a law preventing a no-deal Brexit.
Then this morning, China announced it would resume trade talks with the United States in Washington next month.
Chinese Vice Premier Liu He spoke to US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin by phone this morning, the commerce ministry statement said, and agreed to “work together and take practical actions to create favourable conditions for consultations”.
The announcement provided a small sign of progress in the long-running row that has dragged on the global economy and stock markets.
Asian equities were broadly in positive territory, tracking a healthy lead from Wall Street, where the S&P 500 moved to within touching distance of a new record high.
Tokyo ended more than two per cent higher and Shanghai jumped one per cent, with Sydney 0.9 per cent up.
Seoul gained 0.8 per cent, Singapore 0.3 per cent, and Taipei and Wellington 0.9 per cent apiece. Manila, Bangkok and Jakarta were also well in positive territory.
However, Hong Kong ended with marginal losses. Having soared almost four per cent yesterday on the back of Chief Executive Carrie Lam’s shock decision to withdraw the bill, profit-takers moved in, while there was also some concern the offer will not be enough to avert more unrest.
Sterling extends gains
Adding to the positive vibe were comments from China’s cabinet flagging a cut in the amount of cash banks must keep in reserve, a move aimed at releasing more cash into the stuttering economy.
“A full cut to banks’ reserve ratio is needed to make sure of effective financial support to economic growth, as the global economy slows and domestic consumption and investment face headwinds,” said Wen Bin, at China Minsheng Banking Corp.
On currency markets, high-yielding, riskier assets were up across the board against the dollar, led by the Australian dollar and South Korean won.
The Chinese yuan, which hit 11-year lows earlier in the week, was also well up.
The sterling extended gains after yesterday’s bounce, having slumped to its weakest level since 1985 except for a 2016 “flash crash”.
The unit has enjoyed buying as lawmakers in Westminster push through legislation to avert crashing out of the EU on October 31, delivering an embarrassing blow to new Prime Minister Boris Johnson.
Yesterday, they also blocked his attempt to call a general election until their bill had become law. Economists have warned that a no-deal Brexit could hammer the British economy.
The euro was also supported by developments in Italy, where the new coalition will be sworn in today, drawing a line under a months-long crisis sparked by the far right.
Oil prices dipped after yesterday’s gains of more than four per cent for both contracts, which came in response to the positive stories, as well as fresh US sanctions on Iran and Russia’s promise to stick to a deal with Opec to cut output.
While the mood on trading floors is mostly positive, Stephen Innes, Asia-Pacific market strategist at AxiTrader, sounded a note of caution.
“While a drop in geopolitical risk premium comes as a welcome relief, with the omnipresent trade war clouds looming ominously over the market... the air remains thick with caution.”
In early European trade, London fell 0.2 per cent, while Paris and Frankfurt each added 0.6 per cent.
Key figures around 0810 GMT
Tokyo – Nikkei 225: UP 2.1 per cent at 21,085.94 (close)
Hong Kong – Hang Seng: FLAT at 26,515.53 (close)
Shanghai – Composite: UP 1.0 per cent at 2,985.86 (close)
London – FTSE 100: DOWN 0.2 per cent at 7,298.53
Pound/dollar: UP at US$1.2262 from US$1.2241 at 2100 GMT
Euro/pound: UP at 90.18 pence from 90.13 pence
Euro/dollar: UP at US$1.1040 from US$1.1033
Dollar/yen: UP at 106.52 yen from 106.41 yen
West Texas Intermediate: DOWN 35 cents at US$55.91 per barrel
Brent North Sea crude: DOWN 26 cents at US$60.44 per barrel
New York – Dow: UP 0.9 per cent at 26,355.47 (close)