Oct 15, 2019: Asian markets mostly rose but investor caution returned as the optimism fanned by Donald Trump's much-vaunted China trade deal wore off, while the pound was boosted by a report saying a Brexit deal was taking shape.
While Friday's mini agreement between the world's economic superpowers put off fresh tariffs and saw them reach common ground on some issues, observers pointed out it was light on detail and left other major levies in place.
And, despite Trump's insistence that the “phase one” agreement was “the greatest and biggest deal”, Beijing said it wanted to hold more talks and called for a delay in more tariffs before it would sign.
Equity traders, who have been under pressure from the trade war as well as the slowing global economy and worries about Brexit among others, seized on the news and sent regional markets surging Monday.
But they struggled to build on that as questions swirled over the value of the deal.
“It has taken precisely one working day of the new week for optimism to fade about the US-China trade deal lite/mini/part one,” said Jeffrey Halley, senior market analyst for Asia-Pacific at OANDA.
“The rhetoric-high, but detail-light trade announcement in Washington DC on Friday has been tempered by China being both a lot more circumspect and requesting additional talks before signing an agreement.”
He said that while he expected the two to hammer out something for Trump and counterpart Xi Jinping to sign before they are due to meet next month, “the pseudo-deal itself represents nothing more than a holding action”.
“Everyone's a winner, but everything stays the same, as no progress on the hard stuff has occurred in reality.”
Still, US Treasury Secretary Steven Mnuchin said on Monday that officials would hold further talks by phone this week and next to finalise the deal, while he also defended it on CNBC.
“There is a fundamental agreement in principle,” he said. “There are still some issues that need to be worked out in wording but I would say we have every expectation that phase one will close.
– Pound on the rise –
In early trade, Hong Kong and Sydney were each down 0.1 percent, and Shanghai slipped 0.6 percent.
Manila and Jakarta also fell but Tokyo jumped 1.7 percent by lunch as dealers returned from a long weekend to play catch-up with the rest of Asia.
Singapore, Seoul and Wellington were all 0.2 percent higher while Taipei added 0.4 percent.
On currency markets, the pound rebounded after Britain's Daily Telegraph said a divorce deal was taking shape, EU and British negotiators hailing a positive day of talks on the Northern Ireland issue.
The paper quoted unnamed sources as saying there was “cautious optimism”, while the BBC said the EU is considering holding an emergency summit to push through a possible deal. It said there was not enough time to get anything done before a summit set for this week.
The reports will come as welcome news after European officials played down the chances of an agreement that had been aired by British Prime Minister Boris Johnson and his Irish counterpart Leo Varadkar last week.
Sterling was up against the dollar and euro on Tuesday, with David Kelly at JP Morgan Asset Management saying the Johnson-Varadkar talks had sparked a “whirlwind of diplomacy between the British government and the Europeans to try to come up with an agreement this week”.
He added in a note: “While it is by no means certain that the UK and Europe can agree to a deal or that such a deal can make it through the UK parliament, there does appear to be recognition from the British side that any Brexit deal will have to treat Northern Ireland very differently from the rest of the UK.
“In the multiple permutations of Brexit endgames, this has reduced the risk of a damaging 'no deal' Brexit.”
– Key figures around 0230 GMT –
- Tokyo – Nikkei 225: UP 1.7 percent at 22,174.45 (break)
- Hong Kong – Hang Seng: DOWN 0.1 percent at 26,498.03
- Shanghai – Composite: DOWN 0.6 percent at 2,990.72
- Pound/dollar: UP at $1.2615 from $1.2555 at 2040 GMT
- Euro/pound: DOWN at 87.44 pence from 87.79 pence
- Euro/dollar: UP at $1.1032 from $1.1024
- Dollar/yen: DOWN at 108.36 yen from 108.39 yen
- West Texas Intermediate: DOWN 11 cents at $53.48 per barrel
- Brent North Sea crude: DOWN 18 cents at $59.17 per barrel
- New York – Dow: DOWN 0.1 percent at 26,787.36 (close)
- London – FTSE 100: DOWN 0.5 percent at 7,213.45 (close)