SINGAPORE: Asian stocks surged and the dollar meandered on Monday as signs of easing trade tensions between China and the U.S. buoyed risk appetite, in a strong start to a week that will be headlined by central bank meetings and megacap earnings.
Top Chinese and U.S. economic officials hashed out on Sunday the framework of a trade deal for U.S. President Donald Trump and his Chinese counterpart Xi Jinping to decide on later this week in their eagerly anticipated meeting in South Korea.
A trade deal would pause steeper American tariffs and Chinese rare earths export controls, helping soothe investor nerves that were frayed due to escalating trade tensions between the world’s top two economies.
That sent stocks sharply higher, with South Korea’s KOSPI and Japan’s Nikkei adding more than 2% each and crossing landmarks to record highs. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.3%.
“Investors will want to see confirmation that the trade truce holds and that China’s stimulus and reform signals translate into tangible growth momentum,” said Charu Chanana, chief investment strategist at Saxo.
U.S. stock futures jumped, with Nasdaq futures up 0.88%. European futures were 0.5% higher. The Nikkei breached 50,000 for the first time while the Kospi rose above 4,000.
The Australian dollar , often seen as a risk and China proxy, climbed 0.42% to $0.6541, near a two-week high. Chinese shares opened higher, with blue-chip stocks adding 0.84%. Hong Kong’s Hang Seng rose 0.78%.
Safe-haven gold eased 1% on trade deal hopes, while U.S. Treasuries fell, leaving the 10-year bond yield up 2.9 basis points. Commodities, including soybeans, wheat and corn surged on trade deal prospects.
Chris Weston, head of research at Pepperstone, said markets had largely viewed a trade deal as the higher-probability outcome, so the news will not come as a major surprise and is partly priced in.
“That said, relief buying could still put upside risk into” risk-sensitive assets through the trading week, Weston said.
Investor focus this week will also be on central bank meetings in Japan, Canada, Europe and the U.S.
The Federal Reserve is widely expected to cut interest rates by 25 basis points after data showed U.S. consumer prices increased slightly less than expected in September, but the government shutdown and its impact on data remain a concern.
“While the bar for the markets to expect anything other than a 25-bps cut in the upcoming meeting was high, inflation data should further embolden expectations for a further 25 bps cut in December, especially if labour data remains sluggish,” said Harun Thilak, head of global capital markets at Validus Risk Management.
The dollar was little changed at 152.93 yen , hovering near a two-week high. The euro last bought $1.1635. The dollar index eased 0.1% at 98.824 in early trading.
The European Central Bank and the Bank of Japan are both broadly expected to hold rates steady later this week.
Although the BOJ is likely to debate whether conditions are ripe to resume rate hikes as worries about a tariff-induced recession ease, political complications may keep it on hold for now.
The busiest part of the U.S. earnings season is upon us, with megacaps Microsoft, Appleb, Alphabet, Amazon and Meta Platforms all due to report results this week.
While the profit edge of the “Magnificent Seven”, a group of companies with huge market capitalisations whose shares dominate equity indexes, over the rest of the index is narrowing, they are still expected to post stronger results for this period.
A number of the megacap companies are also key players in the artificial intelligence industry, enthusiasm for which has been the main driver of stock market performance.
Saxo’s Chanana said the U.S. earnings season and guidance from big tech will be key to gauging how resilient corporate profits remain in a slowing economy.
“So while sentiment has improved, the coming week will test whether optimism can turn into durable conviction.”
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