October 29, 2019
By Wayne Cole
SYDNEY (Reuters) – Asian shares scaled a three-month high on Tuesday after Wall Street hit all-time peaks amid hopes of progress in Sino-U.S. trade talks and for another dose of policy stimulus from the Federal Reserve this week.
Japan’s Nikkei <.N225> led the way with a rise of 0.6% to reach ground last trod a full year ago. MSCI’s broadest index of Asia-Pacific shares outside Japan crept up 0.2% in early trade to its highest since late July.
E-Mini futures for the S&P 500 <ESc1> extended their gains by 0.1%.
U.S. President Donald Trump said on Monday he expected to sign a significant part of the trade deal with China ahead of schedule but did not elaborate on the timing.
The U.S. trade representative also said they were studying whether to extend tariff suspensions on $34 billion of Chinese goods set to expire on Dec. 28 this year.
“The market appears to be interpreting the improvement in trade talks as a positive sign that the U.S. will suspend its planned tariffs on $160 billion of Chinese imports due to take place in December,” said Rodrigo Catril, a senior FX strategist at National Australia Bank.
“This is a big assumption as talks could easily fail again if both parties don’t find a compromise.”
On Wall Street, the S&P 500 <.SPX> gained 0.56% to score a record closing peak, while the Dow <.DJI> rose 0.49% and the Nasdaq <.IXIC> 1.01%. [.N]
Microsoft Corp <MSFT.O> climbed 2.46% after winning the Pentagon’s $10 billion cloud computing contract, beating out Amazon.com Inc <AMZN.O>.
Google parent Alphabet Inc <GOOGL.O> slipped in late NY trade after missing analysts’ estimates for quarterly profit even though revenue growth topped expectations.
HANGING ON THE FED
The embrace of risk left bonds out in the cold, and yields on two-year Treasury notes hit four-week highs at 1.667%.
Bond investors are still looking forward to a likely rate cut from the Federal Reserve on Wednesday, though they also suspect officials might sound cautious on moving yet further.
“Some/many Fed participants may think/hope that the October cut will be the last of this cycle,” Michelle Girard, chief U.S. economist at NatWest Markets, said in a report.
“However, we expect weaker data over the coming months and quarters will force the Fed to lower rates further. We look for rate cuts in October, December, March, and June, dropping the fed funds target range to 0.75%-1.00% by the middle of 2020.”
That view is even more aggressive than the futures market, which has 50 basis points of cuts priced in by June.
Central banks in Japan and Canada also meet this week, with talk the former might ease further if only to prevent an export-sapping bounce in its currency.
The shift from safe havens was working to weaken the yen. The dollar was firm at 108.98 yen <JPY=>, having reached its highest in three months, and was eyeing a major top at 109.31.
It fared less well on the euro, which edged up to $1.1097 <EUR=>, and eased back on a basket of currencies to 97.756 <.DXY>.
Sterling firmed after the European Union agreed to a Brexit delay of up to three months, while Prime Minister Boris Johnson lost a vote to force an election on Dec. 12.
The pound was last at $1.2858 <GBP=>, well above its low for the month at $1.2193.
Spot gold slipped back to $1,491.43 per ounce <XAU=>, and away from last week’s top around $1,517.
Oil prices steadied after taking a knock from signs of rising U.S. stockpiles.
Brent crude <LCOc1> futures firmed 12 cents to $61.69, while U.S. crude <CLc1> added 3 cents to $55.84 a barrel.
(Editing by Jacqueline Wong)