Easing trade tensions help Asian equities recover

Summary:

• Asian equity markets rally following Trump’s upbeat comments regarding trade negotiations with China

• Huawei CFO becomes a bargaining chip in trade talks

• US dollar slightly retreats, yen moves lower as risk sentiment improves

Encouraging remarks

After a lacklustre session on Wall Street we have seen successful trading across Asian equity markets in response to Donald Trump’s remarks concerning the ongoing trade negotiations with Beijing. In an interview with Reuters US President said that China is buying tremendous amounts of soybean and these purchases are just starting now (if true, one may hope for even higher amounts being purchased by China). In terms of negotiations with China he said that they are already taking place via telephone but if needed he is ready to meet with Chinese President Xi Jinping (these are similar comments we were offered yesterday, on his Twitter account he wrote to prepare for ‘some important announcements’ with regard to trade talks). Trump also added that his administration will probably have another meeting with top Chinese officials. As far as Chinese tariffs on US cars are concerned, Trump suggested that China is looking to cut these duties to 15% ‘immediately, very quickly’ assuring that the US will not raise tariffs on Chinese goods until he finds out whether the US and China will reach a deal. US President concluded his interview with Reuters saying that auto tariffs on Japan and the European Union will depend on trade negotiations with them.

The second day of encouraging comments from the White House has helped Asian stocks recover. As a result, the Japanese NIKKEI (JAP225) closed 2.15% higher (the weaker yen helped) while the Hang Seng (CHNComp) is climbing 1.6%, the Shanghai Composite is rising 0.25% and the Australian S&P/ASX 200 (AUS200) increasing 1.4%. Let us also add that Trump, in his earlier comments, said that a release of Huawei CFO could be a part of a trade deal with China and it could be done if it would serve national security. Additionally, he added that he has spoke with the US Justice Department about the arrest of Meng Wanzhou. It sounds like a blackmail as Trump says clearly that he will intervene in this case if ‘the largest trade deal is made’. As some had expected earlier, Huawei CFO has become a bargaining chip in trade negotiations which could be a danger game between the two world’s largest economies.

Technically the Hang Seng could be set for a rebound in the nearest future as the price managed to stay above 10200 points. As a consequence, a bounce at least toward 11000 points could be on the cards. Nevertheless, from a broader standpoint nothing has changed of late. The index is still moving within a range and this pattern is likely to last until a binding trade agreement between the US and China is reached. Source: xStation5

Dollar moving nowhere

The US dollar has lost some of its gains over the Asian session but these losses have been modest to say the least. The Japanese yen has been the sole major currency being able to resist the greenback’s weakness and it is trading 0.1% lower at the time of writing reflecting easing trade tensions. In his interview with Reuters Trump also said that it would be foolish for the Federal Reserve to raise interest rates next week adding that lower rates are needed to support the US economy amid the trade war with China. This was another time when Trump implicitly criticized the Fed’s policy. The US central bank is widely expected to deliver a rate increase during its last meeting this year but the rate path for the next year is much blurrier. Over Asian hours trading the US 10Y yield climbed 1 basis point to 2.89% remaining well below 3%, the level seen at the beginning of December.

The EURUSD is trading close to its support area being localized slightly above 1.13. The upcoming hours will be critical for the pair and the ECB meeting could set a direction for the future. Source: xStation5

In the other news:

• Japanese PPI rose 2.3% YoY in November missing the consensus of a 2.4% YoY rise

• Japanese core machine orders climbed 4.5% YoY and fell short of the expected 5% YoY increase

• Italy’s Salvini may reportedly seek elections in Marchi next year, according to La Repubblica