By Ankur Banerjee
SINGAPORE (Reuters) -Asian shares rose on Tuesday as the prospect of easing trade tensions between the world’s top two economies boosted risk sentiment, while Sanae Takaichi was set be elected Japan’s next prime minister, lifting the Nikkei and weighing on the yen.
U.S. President Donald Trump said he expects to reach a fair trade deal with Chinese President Xi Jinping and downplayed risks of a clash over the issue of Taiwan.
Trade tensions between the U.S. and China have weighed on the markets in recent weeks, with investor focus now on Trump’s planned meeting with Xi on the sidelines of an economic conference in South Korea next week.
The lingering hope that a resolution could be on the cards lifted investor sentiment. MSCI’s broadest index of Asia-Pacific shares outside Japan hit an over four-and-half-year high and was last up 0.94%. China stocks rose 0.2% while Hong Kong’s Hang Seng was 1% higher in early trading.
Australian shares surged as investors snapped up rare earths and critical minerals stocks after the country signed a supply deal with the United States.
Japan’s Nikkei rose to a record peak and was on the cusp of hitting a landmark 50,000 points as the so-called ‘Takaichi trade’ showed no signs of stopping. A parliamentary vote confirmed Takaichi as the nation’s next prime minister.
INVESTORS BUY THE DIP
Investor sentiment was also hit hard last week as a clutch of bad loans at U.S. regional banks spurred concerns over credit risks that threatened to spill into the broader markets. The prolonged U.S. government shutdown also weighed on risk assets.
But investors so far this week have shrugged off those concerns and bought the dip, focusing on upcoming earnings from several large firms and betting that trade tensions would ease.
“The market has hurdled the wall of worry with ease, with new capital injected into risk and fresh oxygen into the market’s lungs,” said Chris Weston, head of research at Pepperstone.
Market expectation of the Federal Reserve cutting interest rates in the next two meetings and comments from White House economic advisor Kevin Hassett that the federal government shutdown is likely to end this week also buoyed sentiment.
A broad rally sent all three major U.S. stock indexes to a sharply higher close overnight with chip stocks hitting a record high.
Analysts currently expect third-quarter S&P 500 earnings growth, on aggregate, of 9.3% year-on-year, marking an improvement over their 8.8% growth estimate as of October 1.
“We’re quite bullish on equities as an asset class globally,” said Mixo Das, Asia Equity and Quant Strategist at J.P. Morgan.
“I think the biggest driver of this is simply the sort of policy easing that we’re seeing … the economy is not anywhere close to being in a recession, and policy is still easing very aggressively.
TAKAICHI WINS LOWER HOUSE VOTE TO BECOME JAPAN’S PM
Hardline conservative Sanae Takaichi was set to become Japan’s first female prime minister after winning a critical vote in parliament’s lower house.
Analysts expect Takaichi to be pro-stimulus and against further hikes in interest rates, a negative for the yen and bonds but a plus for equities.
The yen was last 0.4% weaker at 151.39 per dollar, while also struggling against the euro and sterling. [FRX/]
The Bank of Japan is due to meet next week with traders pricing in 20% chance of a hike, although Governor Kazuo Ueda has so far left his options open by offering few clues on the timing of a rate hike.
Gold prices slipped 0.8% on the day but were still near the record high it has been around in the recent weeks. [GOL/]
(Reporting by Ankur Banerjee; Editing by Sam Holmes and Kim Coghill)
