SINGAPORE, Oct 27 — Asian stocks surged and the dollar meandered today as signs of easing trade tensions between China and the US buoyed risk appetite, in a strong start to a week that will be headlined by central bank meetings and megacap earnings.
Top Chinese and US economic officials on Sunday hashed out the framework of a trade deal for US President Donald Trump and his Chinese counterpart Xi Jinping to decide on later this week during their eagerly anticipated meeting in South Korea.
A trade deal would pause steeper American tariffs and Chinese rare earth export controls, helping soothe investor nerves frayed by escalating trade tensions between the world’s two largest economies.
That sent stocks sharply higher, with South Korea’s KOSPI and Japan’s Nikkei each gaining more than 2 per cent and hitting record highs. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.3 per cent.
“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.
US stock futures jumped, with Nasdaq futures up 0.88 per cent, while European futures rose 0.5 per cent. The Nikkei breached 50,000 for the first time, while the KOSPI climbed above 4,000.
The Australian dollar, often seen as a proxy for risk and China exposure, climbed 0.42 per cent to US$0.6541, near a two-week high. Chinese shares opened higher, with blue-chip stocks adding 0.84 per cent, while Hong Kong’s Hang Seng rose 0.78 per cent.
Safe-haven gold eased 1 per cent on trade deal hopes, while US Treasuries fell, lifting the 10-year bond yield by 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 would not come as a major surprise and was partly priced in.
“That said, relief buying could still put upside risk into risk-sensitive assets through the trading week,” Weston said.
Central bank meetings await
Investor focus this week will also be on central bank meetings in Japan, Canada, Europe and the US.
The Federal Reserve is widely expected to cut interest rates by 25 basis points after data showed US consumer prices increased slightly less than expected in September, though the government shutdown and its impact on data remain a concern.
“While the bar for the markets to expect anything other than a 25-basis-point cut in the upcoming meeting was high, inflation data should further embolden expectations for another 25-basis-point 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 traded at US$1.1635, while the dollar index eased 0.1 per cent to 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.
Focus on megacap earnings
The busiest part of the US earnings season is under way, with megacaps Microsoft, Apple, 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 that dominate equity indexes — over the rest of the market is narrowing, they are still expected to post stronger results for this period.
Several of these megacap firms are also key players in the artificial intelligence industry, enthusiasm for which has been a major driver of stock market performance.
Saxo’s Chanana said the US 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,” she said. — Reuters
