Asian shares rose 0.8%, while shares in Japan and South Korea rose about 2%. Futures for the S&P 500 and Nasdaq 100 rose after both underlying indices closed at record highs last week. Futures for US copper – a gauge of global growth – rose, along with oil, as the potential US-China deal boosted the outlook for global demand.
The Australian and New Zealand dollars, popular indicators of China exposure, edged higher, while the greenback was mixed against other major currencies. Government bonds fell across the entire curve, with the yield on the 10-year yield rising by more than two basis points to 4.02%.
The moves suggested investors would welcome a potential trade deal between the world’s two largest economies, which coincided with President Donald Trump’s regional visit for diplomatic talks. His journey kicks off a busy week, with interest rate decisions from central banks and earnings from the largest US technology companies.
“Optically, this looks like a win for both sides,” said Charu Chanana, chief investment strategist at Saxo Markets in Singapore. “Broader markets are likely to view this as a near-term risk. But the rally will need to be supported by fundamentals to hold.”
Top negotiators from the US and China said they had agreed on a series of controversial points, clearing the table for Trump and Xi Jinping to finalize a deal and ease trade tensions that have roiled global markets. The comments from both sides followed two days of talks in Malaysia that concluded on Sunday. A Chinese official said the countries had reached a preliminary consensus on issues including export controls, fentanyl and shipping duties. “This looks more like a de-escalation than a new dawn,” Sean Keane, chief Asia Pacific strategist at JB Drax Honore Singapore Pte Ltd, wrote in a client note. Removing the threat of additional US tariffs on China that would have been imposed from November 1 “simply avoids the increase that would otherwise have occurred, although few in the market apparently believed these would eventually be implemented,” he said.
The encouraging signs from both sides of the negotiations were in stark contrast to recent weeks, when Beijing’s announcement of new export curbs and Trump’s mutual threat of staggering new tariffs threatened to plunge the world’s two largest economies into an all-out trade war again.
Traders will look forward to a busy week of central bank announcements, including interest rate decisions from the Federal Reserve, the European Central Bank and the Bank of Japan.
The Fed is expected to cut rates by 25 basis points, while the ECB and BOJ are expected to leave rates unchanged.
Apple Inc. and Microsoft Corp. are among the mega-cap tech companies reporting earnings this week.
“This week, all three pillars of the equity bull case – a calmer trading tone, solid earnings and looser policy – will be tested,” said Michael Brown, senior research strategist at Pepperstone Group Ltd. in London, in a note. “If we come through unscathed, the market will likely continue to follow the path of least resistance to the uptrend and print new highs through the end of the year.”
“These developments set the stage for greater volatility as investors deal with central bank policy shifts, geopolitical trade easing and corporate earnings signals – all factors that will determine the market’s direction heading into the end of the year,” said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg.
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