February 21, 2019: Asian markets mostly rose Thursday on growing optimism that China and the US will finally resolve their long-running trade war, with a report saying the two sides were working on an outline for a deal.

Equities have enjoyed a stellar start to the year on hopes for the negotiations and expectations the Federal Reserve will ease up on its pace of monetary tightening as growth at home and globally slows.

The upbeat mood across the region was enhanced Thursday as Bloomberg News said negotiators were sketching out a number of memorandums of understanding on key issues including intellectual property and technology transfer.

Without naming sources, the report said no final agreement was expected in Washington this week but that China's top negotiator Liu He would meet Donald Trump Friday.

After a cautious start, markets were up across Asia Thursday.

Hong Kong rose 0.3 percent but Shanghai dipped 0.3 percent after fluctuating through the day. The yuan was sitting around its strongest level against the dollar since July, with support also coming from other reports that the US is calling in China not to weaken it to offset the impact of tariffs.

Tokyo ended up 0.2 percent, while Sydney rose 0.7 percent, Wellington added 0.6 percent and Taipei 0.5 percent.

There were also gains in Mumbai, Bangkok and Jakarta, while Singapore was flat though Seoul and Manila dipped.

While there has been no concrete sign of progress, Trump has insisted the talks are going “very well” and has indicated he could push back a deadline for a deal to be done.

Europe's main stock markets diverged at the start of trade on Thursday, with London's benchmark FTSE 100 index down 0.3 percent at 7,209.39 points.

In the eurozone, Frankfurt's DAX 30 index rose 0.4 percent to 11,448.65 points and the Paris CAC 40 won 0.1 percent to 5,200.12, compared with Wednesday's close.

– 'Potentially ugly correction' –               

However, observers warned of turmoil if expectations were not met.

“There's a lot of optimism baked into global markets on the outcome of the negotiations and precisely zero detail on the actual result,” said Jeffrey Halley, senior market analyst at OANDA.

“A suboptimal outcome could make for a potentially ugly correction in equities and currencies in particular.”

On Wednesday, minutes from the Fed's latest policy meeting showed its board was concerned about the global outlook and trade tensions, and said US growth would “step down” from last year's rapid pace.

It also said it expects to continue to wind down its balance sheet of securities and other assets — which helps keep borrowing costs down — but added “it was not yet clear” what rate moves “may be appropriate later this year”.

The minutes showed there could be another hike if price pressures pick up.

Analysts said there was still a possibility of more increases in borrowing costs this year, after four in 2018.

“The debate is still focused on whether to tighten or not, and not whether to cut,” said Lou Crandall, chief economist at Wrightson ICAP LLC. “The risk is tilted in the direction of more tightening.”

On currency markets, the pound extended Wednesday's losses that came after Fitch warned it could slash Britain's credit rating owing to the economic hit from a potential no-deal Brexit. 

Adding to sterling's weakness was Prime Minister Theresa May's failure to get a breakthrough in talks with European Commission President Jean-Claude Juncker on revising their Brexit deal.

With just over a month until Britain leaves the bloc, May still has no agreement that she can push through parliament.

Adding to her woes was news that three MPs had quit her ruling Conservative party.

– Key figures around 0710 GMT –

Tokyo – Nikkei 225: UP 0.2 percent at 21,464.23 (close)

Hong Kong – Hang Seng: UP 0.3 at 28,592.44

Shanghai – Composite: DOWN 0.3 percent at 2,751.80 (close)

Dollar/yen: DOWN at 110.77 yen from 110.89 yen at 2200 GMT

Euro/dollar: DOWN at $1.1333 from $1.1335

Pound/dollar: DOWN at $1.3032 from $1.3045

Oil – West Texas Intermediate: UP 19 cents at $57.35 per barrel (new contract)

Oil – Brent Crude: UP 16 cents at $67.24 per barrel

New York – DOW: UP 0.2 percent at 25,954.44 (close)

London – FTSE 100: UP 0.7 percent at 7,228.62 (close)

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