Asian shares hit their highest in nearly 8 months after trade deal

Asian shares hit their highest in nearly eight months on Monday after the United States and China agreed on a preliminary trade deal, with Australian shares leading the way on expectations of more easing of monetary policy there.

European shares were set to build on the previous week’s gains. In early European trades on Monday, pan-region Euro Stoxx 50 futures were up 0.62 per cent, German DAX futures were 0.5 per cent higher and FTSE futures rose 0.6 per cent.

US stock futures also pointed to stronger gains to start the week, with the S&P 500 e-minis up 0.27 per cent. US Trade Representative Robert Lighthizer said on Sunday a deal was “totally done”, notwithstanding some needed revisions, and would nearly double US exports to China over the next two years.

Meanwhile the Japanese stocks fell on Monday, slipping from an over one-year high hit in the previous session, as investors booked profits following an initial rally sparked by a preliminary trade deal between the United States and China.

Positive sentiment helped push the MSCI’s broadest index of Asia-Pacific shares outside Japan to its highest level since April 18. It was last up 0.25 per cent.

Australia’s S&P/ASX 200 led the way as it jumped 1.63 per cent, while shares in Taiwan added 0.22 per cent.

Ryan Felsman, senior economist at CommSec in Sydney, said the trade deal and the receding risk of a disorderly Brexit after the UK general election produced a strong Conservative majority provided support for sentiment in Australia.

A lower-than-expected Australian budget surplus due to a sluggish economy has also “built expectations by markets for further easing from the Reserve Bank (of Australia),” he said.

Chinese investors initially had a more tepid reaction to the trade news, with the blue-chip CSI300 index struggling to rise further after trade hopes fanned a near 2 per cent rise on Friday.But after a lacklustre morning session, the CSI300 index turned higher in the afternoon and was last up 0.3 per cent, helped by data showing the country’s industrial output growth and retail sales jumped more than expected in November.

Japan’s Nikkei 225 succumbed to some profit-taking, falling 0.29 per cent after surging 2.55 per cent to a 14-month closing high on Friday.

The “phase one” agreement suspended a threatened round of US tariffs on a $160 billion list of Chinese imports that was scheduled to take effect on Sunday. The United States also agreed to halve the tariff rate, to 7.5 per cent, on $120 billion worth of Chinese goods.

Felsman at CommSec said investors wanted more details and the reduction in US tariffs may have disappointed some looking for more aggressive action.

“Certainly there were expectations perhaps that the rollback would be more significant than just 50 per cent,” he said.

The 17-month-old trade dispute between the world’s two largest economies has roiled financial markets and taken a toll on world economic growth.

“The announcement is a step in the right direction for the two nations, but does not completely reduce the chances of trade disputes between the two nations in the year,” ANZ analysts said in a note.

US shares had struck a cautious note on Friday, paring initial gains to end barely higher as weary investors awaited signs of a concrete deal.

However, the news of a deal was still enough to send the S&P 500 to a record closing high of 3,168.8, up 0.01 per cent. The Nasdaq Composite added 0.2 per cent to end at 8,734.88, also a record, and the Dow Jones Industrial Average rose 0.01 per cent to 28,135.38.

US Treasury yields moved higher on Monday, reflecting a more positive mood. Benchmark 10-year Treasury notes rose to 1.8365 per cent compared with their US close of 1.821 per cent on Friday, and the two-year yield touched 1.6223 per cent compared with a US close of 1.604 per cent. The dollar was slightly higher against the yen at 109.39 and the euro was up 0.14 per cent at $1.1135. Sterling, which jumped last week after the UK election, gained 0.48 per cent to $1.3389.

The dollar index, which tracks the greenback against a basket of six major rivals, was down 0.12 per cent at 97.053.

Oil prices, which had risen on Friday following the deal, cooled in early Asian trade on Monday. Brent crude shed 0.31 per cent to $65.02 per barrel, and US West Texas Intermediate crude was down 0.37 per cent at $59.85 per barrel.

The Nikkei index ended down 0.29 per cent at 23,952.35 as the industrial and materials sectors leading the declines. It is up 20.03 per cent so far for the year.

Reuters