(Aug 14): Asian stocks were primed to rally after the Trump administration de-escalated its trade war with China, providing relief to risk assets that had been under pressure earlier in the week. Treasuries retreated.
Japanese futures were more than 2% higher after the S&P 500 saw its biggest intraday gain in more than two months. Washington said it was delaying until mid-December the 10% tariff on some Chinese-made products that are high on many holiday-shopping lists such as phones, laptops and toys. The U.S. yield curve flattened toward inversion on stronger-than-expected CPI data before the easing in trade tensions sent 10-year yields higher. The dollar strengthened.
President Donald Trump said he delayed the tariffs to spare the Christmas shopping season after his representatives had a “productive” call with China. That provided the impetus for renewed appetite for riskier assets, a welcome respite from the souring trade tensions that are investors’ number one concern facing markets. Next up is a slew of Chinese economic data due on Wednesday.
The decision to delay has “prompted a relief rally in the markets,” said Tom Orlik, chief economist for Bloomberg Economics. “From the perspective of the immediate risk to corporate earnings, this makes sense. Thinking about the trade war’s deeper impact on growth, the problem remains unresolved.”
Before the trade headlines landed, fresh U.S. inflation data showed an unexpectedly strong reading, denting arguments for cutting interest rates and flattening the Treasury yield toward inversion. The spread between two- and 10-year yields hit the narrowest since 2007. The tariff detente did halt the bond rally, pushing the 10-year rate to 1.7%.
Meanwhile, the situations in Hong Kong and Argentina remained unstable. The South American nation’s peso tumbled anew amid rising concern the nation will default on its debt. In Hong Kong, traders will be monitoring the protests after its airport canceled flights for a second day amid clashes with police.
Elsewhere, oil jumped the most since early January as the trade deadlock between the world’s biggest economies showed signs of easing.
Here are some key events coming up:
Companies releasing results include Tencent and Alibaba; Cisco, Walmart and Nvidia of the U.S.; the U.K.’s Prudential; Australia’s Telstra; Europe’s Swisscom and brewer Carlsberg.
Wednesday brings data on China retail sales, industrial production and the jobless rate.
Thursday sees the release of U.S. jobless claims, industrial production and retail sales data.
These are the main moves in markets:
The S&P 500 Index rose 1.5%.
Futures on Japan’s Nikkei 225 climbed 2.2%.
Hang Seng futures earlier advanced 1.6%.
Futures on Australia’s S&P/ASX 200 Index added 0.7%.
The yen was at 106.75 per dollar after tumbling 1.4%.
The offshore yuan traded at 7.0130 per dollar.
The Bloomberg Dollar Spot Index advanced 0.2%.
The euro bought $1.1172.
The yield on 10-year Treasuries rose five basis points to 1.70%.
Gold was little changed at $1,501.58 an ounce.
West Texas Intermediate crude rose 3.3% to $56.73 a barrel. - Bloomberg