Asia stocks stage relief rally after China-US deal

Marco Green
December 5, 2018

"Overall trade news overnight (has) probably left the market with more questions than answers, can the U.S. and China really resolve their differences in 90 days?"

U.S. Treasury yields rose after the U.S.

According to recent market data, $325 billion was added to companies in the MSCI Asia Pacific Index. It ticked up $2.23 to $61.69 a barrel in London. Shares in Hong Kong lost 0.3 per cent.

Regarding its effects on the market, futures contracts on the S&P 500 Index rose by as much as 1.9 percent within the first minutes of trading and have stayed relatively the same over the course of the trading day.

A truce between U.S. and Chinese leaders on trade tariffs provided a boost to global markets on Monday, fuelling a almost one per cent surge on world stocks and pushing emerging currencies higher across the dollar.

Still, major USA indexes closed below their highs from earlier in the session.

"Overall trade news overnight (has) probably left the market with more questions than answers, can the USA and China really resolve their differences in 90 days?"

"Can the USA and China really resolve their differences in 90 days?" asked Rodrigo Catril, senior strategist at National Australia Bank.

The effect of the trade truce was also felt across the globe. "Particularly contentious issues, like intellectual property rights and market access, have yet to be addressed, and we wouldn't be surprised if no agreement is reached in the 90-day period during which the United States has pledged to suspend its previously-planned tariff increases".

A man sits in front of an electronic board showing stock information at a brokerage house in Hangzhou, Zhejiang province, China December 3, 2018. Earlier, White House economic adviser Larry Kudlow told reporters it would start on January 1.

U.S. President Donald Trump said China has agreed to "reduce and remove" tariffs below the 40 percent level now charged on U.S. -made vehicles.

ANALYST TAKE: "This may be a little harsh as a deal isn't necessary in the 90-day window, the two sides just need to agree on the parameters of a future deal and what will be included in order to extend the truce and work towards removing tariffs", said Craig Erlam, senior market analyst at OANDA.

"In the short term it seems we may find investors once again back to trading sentiment fluctuations as news hits the markets piecemeal on trade agreement progress". Arone noted some "very sticky" issues remain unresolved between the world's two top economies.

The so-called "inversion" of the yield curve is the first since the beginning of the financial crisis in 2007 and to many investors sounded an alarm about a looming US economic slowdown.

With trade tensions taking a back seat for the moment, investors' attention is likely to turn to US monetary policy, analysts said. The two-year yield also fell, but by a narrower margin, touching 2.8028 per cent compared with a USA close of 2.833 per cent.

"The market pricing evident in the yield curve inversion from three to five segment of the curve, as well as the dip in the 10-year yield below 3 per cent yesterday, goes to reinforce these concerns" about the U.S. economy potentially heading into a recession, said Prakash Sakpal, an economist at ING in Singapore.

However, he added that solid USA manufacturing data released Monday pointed to a stronger economic outlook, with new orders a "key driver" in boosting activity. -China trade truce, and ahead of a key OPEC meeting that is expected to lead to supply cuts.

The New Zealand dollar NZD= gained 0.6 percent, while the US dollar lost 0.6 percent against the Canadian dollar CAD=.

Japan's Nikkei stock index tumbled, closing 2.4 per cent lower on profit taking and as foreign investors and hedge funds reduced their positions on risky assets.

Telecommunications equipment giant ZTE, which was temporarily banned by the USA from buying parts from American suppliers for three months this year, continued to be positive ending up 0.72 per cent to HK$16.86, though gains were marginal in comparison to its 7.9 per cent jump on Monday.

As the dollar weakened, China's yuan continued to surge. Since Friday, it has added more than 1,000 pips against the greenback, reaching 6.8545 on Tuesday morning.

Other reports by Click Lancashire

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