Asian markets rose yesterday as investors tracked a positive lead from Wall Street on optimism over the China-US trade talks, while attention turns to the Federal Reserve’s next policy meeting this week.
The pound held most of its gains as Prime Minister Theresa May tries to push her EU divorce deal through parliament for a third time, failure of which could see Britain extend its exit deadline or possibly crash out of the bloc.
The broad-based gains built on last week’s advance as top officials from the world’s biggest economies work on an agreement to end their long-running tariffs spat, which was a major drag on markets at the end of 2018.
While there are few details on the talks as they stand – and a floated summit between Donald Trump and Xi Jinping looks to be later than expected – upbeat comments from both sides are keeping investors broadly happy for now.
“The signing of a trade deal between the US and China would eliminate one major headwind for global markets and is currently the more probable outcome according to most analysts,” said James Hughes, chief market analyst at AxiTrader. “There is more of an incentive for both superpowers to make a deal because it is economically in their best interests.
This is especially the case given the growing US trade deficit due to falling exports to China.”
Hong Kong rose 1.4% to 29,409.01, while Shanghai rallied 2.5% to 29,409.01 and Tokyo ended 0.6% higher at 21,584.50.
Sydney edged up 0.3% and Singapore was 0.4% stronger while Seoul, Wellington, Taipei and Jakarta were also well in the green.
“The positive vibe from last week appears to have carried over into Asia at the start of the new week, as optimism about a US, China trade deal once again returns to the fore,” said Michael Hewson, chief market analyst at CMC Markets UK.
The Fed’s next meeting will be closely followed in hopes it will give an idea about its plans for interest rates, with some observers suggesting it will pare its pace of hikes in the face of a slowing global economy.
With inflation still tame as US growth decelerates, economists also say the central bank will lower the number of hikes they expect this year, from the two projected in December, while there is even talk of a possible cut at some point.
The softer rate outlook has helped push the pound up against the greenback, with the British unit also supported by easing worries the country will crash out of the EU without a deal.
May is expected to put her agreement back to MPs for a third time tomorrow.
If it passes she will ask her EU counterparts to extend the March 29 exit deadline by a few months.
But if it is again tossed out she could ask for much more time, with speculation swirling that May could call a general election or even another referendum.
“The two most likely scenarios... are that Theresa May’s deal finally gets approved on a third attempt, or that Brexit is delayed on the condition of a referendum or general election being held,” said AxiTrader’s Hughes.
“Both would be very positive for the pound.”
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