Asia stocks rally after China-US deal

December 03, 2018

HONG KONG -- Hong Kong and Shanghai led a surge across Asian markets Monday after the United States agreed to suspend imposing tariffs on China for three months, while oil prices soared on expectations of a big production cut.

In a much-anticipated meeting between Donald Trump and Xi Jinping at the weekend, the heads of the world’s two biggest economies hammered out a deal that will see them hold off on their tit-for-tat tariffs row, which has roiled global equities for most of the year.

The US will not raise levies on Chinese goods on January 1 while China promised to buy more from the US and enter a 90-day period of talks to bring an end to the dispute.If the negotiations, fail tariffs will jump from 10 percent now to 25 percent.

Trump hailed the meeting — held on the sidelines of the G20 in Buenos Aires — as “amazing and productive... with unlimited possibilities for both the United States and China”.And on Sunday the US president said Beijing had agreed to cut tariffs on car imports.”China has agreed to reduce and remove tariffs on cars coming into China from the U.S. Currently the tariff is 40%,” he wrote on Twitter.News of Saturday’s deal lit a fuse under Asian markets, with Hong Kong and Shanghai each rallying more than two percent, while the Chinese yuan — which has tumbled this year on worries about the trade row — jumped 0.8 percent.

Tokyo climbed one percent, Sydney rose 1.8 percent, Seoul put on 1.7 percent, Singapore was 2.2 percent higher and Taipei rallied 2.5 percent.”This is the best outcome that we had hoped for out of this meeting,” said Frances Cheung, head of Asia macro strategy at Westpac Banking Corp.

Oil prices surge -However, while the early reaction was positive, observers warned there were still major issues that need to be resolved.The “imposition of no new tariffs is not the same as retracing the existing tariffs that have come into play this year and will gradually have an impact on the US economy”, said Kerry Craig, global market strategist at JP Morgan Asset Management. 

”Moreover, the ideology behind the trade tensions is still about strategic positioning of the two economies, which means until issues around technology transfer and (intellectual property) are resolved, nerves will persist. 

”We anticipate that things are still likely to get worse before they get better, and that the negative sentiment impact created by the trade narrative will create additional market volatility.” 

And Hao Hong, a strategist with Bocom International Holdings, added: “What we have now is a truce at the best. This may produce a short-term rebound, though the resilience of the rally depends on how soon everyone will begin to see the situation through.