Stocks rise as US-China trade deal in sight

Summary:

• Asian stock markets rally following a series of upbeat comments regarding US-China trade negotiations
• China offers to lower tariffs on US farm, chemical and auto products
• Australian inventories fell in the fourth quarter being a drag on GDP due later this week

Possible deal in sight

Over the weekend we were offered revelations from Wall Street Journal that China and the US are in the final stage of completing a trade agreement, a move which could lift most or all US duties on the world’s second largest economy. The WSJ also reported that Beijing was offering to lower tariffs and other restrictions on American farm, chemical, auto and other products. In turn, Washington is reportedly mulling over removing most, if not all, sanctions against Chinese products since last year. A possible issue could be the fact that China aims at ending a trade dispute with the United States but it could be unwilling to fulfill all its potential pledges (to reduce a trade surplus with the US) without removing US duties on $200 billion goods altogether. Therefore, one may imagine US sanctions could be phasing out if the country sees that China is doing what it has pledged to do. The details, and thereby potential Chinese pledges, have yet to be announced (China is likely to buy more US goods and to remove foreign-ownership limitations an auto ventures). According to the WSJ a trade deal could be signed during a Trump-Xi meeting which could happen around March 27. Let us remind that Donald Trump decided to postpone to increase a tariff rate on $200 billion Chinese goods last week.

The SP500 (US500) seems to be eager to move above its crucial supple zone localized nearby 2815 points. Note that this zone provided support for bears repeatedly, hence it could be perceived as a strong technical level. Source: xStation5

These kind of comments are fuelling hopes that the two feuding countries will be ultimately able to end a trade war which has disrupted global trade flows over the recent months being a drag on global GDP growth. As a result, Asian stocks have risen notably - Chinese indices are trading roughly 1% higher on the day while the Japanese NIKKEI (JAP225) closed the first trading day this week with a 1% increase. US futures are pointing to a positive open as well. In turn, on the currency front no one should be surprised seeing both NZD and AUD among top performers in the G10 basket this morning.

More data from Asia, GBP likes recent Brexit-related comments

Over Asian hours trading we also got some noteworthy macroeconomic readings, most of them came from Australia. Let’s begin with the inventories data for the fourth quarter of 2018 producing an unexpected decline of 0.2% QoQ (a 0.3% QoQ increase had been anticipated). Thus, this figure contributed negatively to GDP growth for the final three months of the past year. The Q4 GDP release will come out this Wednesday, but before we get this reading the net exports’ contribution will be published tomorrow. On top of that, Australia building approvals rose 2.5% MoM in January, beating the median estimate of a 1.5% MoM rise. Whereas, the Australia’s monthly inflation indicator for February ticked up 0.1% MoM or 1.7% YoY, up from -0.1% MoM and 1.5% YoY in January. Finally, manufacturing PMI data from South Korea and Taiwan showed declines in February. The index for South Korea dropped to 47.2 from 48.3 while the gauge for Taiwan fell to 46.3 from 47.5 reaching its lowest level in over three years. The data confirmed sluggishness of demand among Asian economies as most of them is strongly reliant on the China’s economy.

The Aussie keeps moving somewhat above the important demand zone around 0.72. Source: xStation5

In the other news:

• Over the weekend pro-Brexit hardliners in May’s Conservative Party outlined conditions for supporting her plan, according to the Sunday Times; the pound is gaining a bit more than 0.2% as a result

• Irish Prime Minister Leo Varadkar told Cabinet colleagues that a Brexit delay was “very likely”