Progress in trade talks between the United States and China lifted Asian shares on Monday, although many investors remain unsure whether the current spell of political goodwill will translate into firm agreements.
Investor sentiment got a boost after US President Donald Trump outlined the first phase of a deal to end a trade war with China and suspended a threatened tariff hike, though officials on both sides said much more work needed to be done.
The emerging deal, covering agriculture, currency and some aspects of intellectual property protections, would represent the biggest step by the two countries in 15 months.
“The trade thaw provided a healthy uplift to sentiment, not because the market is expecting a full resolution but because of the lower probability of more tariffs,” Freddy Lim, co-founder and chief investment officer at Singapore-based robo-investment firm StashAway told Al Jazeera.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.1 percent in light trade, as Japan’s stock exchanges were closed for a public holiday. Liquidity was also lowered by a partial market holiday in the US.
Japan’s Nikkei futures were trading at 22,075 compared with Friday’s close of 21,798 on the Nikkei cash index.
Australia’s main index gained 0.7 percent and South Korea 1.3 percent. Shanghai blue chips added 1.6 percent.
However, the fragility of Trump’s handshake agreement with China and a broader slowdown in global growth could continue to weigh on investors’ minds.
“We have seen a truce established, and then broken, before,” said Tai Hui, chief market strategist for Asia at JPMorgan Asset Management.
“The threat to global growth is weak corporate [capital expenditure], and potentially spilling over into the consumer sector,” Hui added. “CEOs are not going to restart investing again merely because of the latest round of agreement between the two sides.”
The economic drag resulting from the trade war was a major reason Singapore’s central bank eased monetary policy on Monday for the first time in three years. New data showed the city-state’s economy only narrowly dodged a recession in the third quarter.
“It is unlikely the ‘partial deal’ will do much to give certainty to firms’ investment and hiring decisions in the US or elsewhere,” said Tapas Strickland, a director of economics and markets at National Australia Bank. “As such, it is still likely trade uncertainty will weigh on economic activity, and the Fed will cut rates to ward-off the headwinds.”
To prove the point, China’s exports fell at a faster pace in September than the previous month, while imports contracted for a fifth straight month, pointing to economic weakness potentially caused by the trade war.
Compared to stocks, the US dollar index fared less well elsewhere, partly due to a jump in sterling, and was last quoted at 98.435 against a basket of currencies after losing 0.5 percent last week.
The dollar also dipped against the Chinese yuan to stand at 7.0646.
The pound was at $1.2598 having surged to a 15-week high around $1.2705 on Friday on optimism the United Kingdom could reach a deal on Brexit with the European Union.
The positive tone struck by Ireland’s Prime Minister Leo Varadkar on the potential for a deal after a meeting with UK Prime Minister Boris Johnson was also a boost of confidence, StashAway’s Lim said.
“The details are loose but there is a lot of upbeat talk by politicians, which is pleasing to markets,” he said.
However, officials from Downing Street and the EU said on Sunday a lot more work would be needed to secure an agreement on Britain’s departure from the bloc.
The two sides will hold more talks on Monday ahead of a summit of EU leaders in Brussels on Thursday and Friday.
The improvement in sentiment saw spot gold fall another 0.2 percent to $1,486.85 per ounce. Investors tend to buy gold when they anticipate tough times ahead and sell it when economic forecasts brighten.
Oil prices steadied after jumping last week following an attack on an Iranian state-owned oil tanker in the Red Sea.
Investors were also anxiously watching Turkey’s incursion into Syria as the White House threatened to impose heavy sanctions on Ankara.
Brent crude futures eased 31 cents at $60.20, while US crude lost 30 cents to $54.40 a barrel.