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US-China trade optimism lifts Asian markets

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
U.S. President Donald Trump holds a letter from China's President Xi Jinping during a meeting with China's Vice Premier Liu He in the Oval Office at the White House after two days of trade negotiations in Washington, U.S., October 11, 2019. REUTERS/Yuri Gripas
US president Donald Trump holds a letter from China's president Xi Jinping during a meeting with China's vice-premier Liu He in the Oval Office at the White House on 11 October, 2019. Photo: Yuri Gripas/Reuters

Stocks rallied on Monday, ahead of the signing of the ‘Phase One’ trade deal between the US and China later this week.

Representatives from the US and China are set to sign an initial trade deal on Wednesday. Separately, the Wall Street Journal reported on Saturday that the two sides will also announce new semi-annual trade talks, separate from the ‘Phase Two’ trade deal negotiations. The new talks will cover mechanisms for resolving future disputes and possible reforms.

Signs of cooling tensions between the two superpowers helped spur Asian stock markets higher. Japan’s Nikkei (^N255) closed up 0.4%, the Hong Kong Hang Seng (^HSI) was up 0.9%, and the Shanghai Composite (000001.SS) in China rose 0.7%.

European markets also opened higher, although gains were less notable. The FTSE 100 (^FTSE) climbed 0.3%, the DAX (^GDAXI) gained 0.1%, and the CAC 40 (^FCHI) in France rose by 0.1%.

READ MORE: Fastest rise in City optimism in four-and-a-half years

Neil Wilson, chief market analyst at Markets.com, said the ‘Phase One’ trade deal signing was “the focal point” for investors and traders within the market.

He said expectations for the deal to be signed were now “baked in” but warned the deal “could unravel at any moment if either side wants to walk. Enforcement is an issue too.”

Strategists at Deutsche Bank noted there was still uncertainty regarding the terms of the ‘Phase One’ trade.

“US treasury secretary Steven Mnuchin said over the weekend that an English-language version of the agreement will be released this week,” Deutsche Bank’s Jim Reid, Craig Nicol, and Henry Allen wrote in a note sent to clients on Monday.

“It’s quite remarkable that we still don’t know much in the way of details so eyes will be on this.”

Reports suggest the agreement will boost Chinese purchases of American goods and address some intellectual property disputes. The draft agreement runs to 86 pages.