Asian stocks slip after grim U.S. retail sales data

TOKYO (Reuters) – Asian stocks slipped on Friday after grim U.S. retail sales figures raised fresh doubts about the strength of the U.S. economy, offsetting optimism on trade talks between the United States and China.

Also casting a shadow, the White House said U.S. President Donald Trump will declare a national emergency to try to obtain funds for his promised U.S.-Mexico border wall, drawing immediate criticism from Democrats.

Japan’s Nikkei dropped 1.1 percent while MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.25 percent in early trade, with South Korea’s Kospi shedding 1.0 percent.

In the United States, the S&P 500 lost 0.27 percent on Thursday, a day after it hit a 10-week high on rising hopes that Washington and Beijing could reach a trade deal.

U.S. retail sales tumbled 1.2 percent in December, recording their biggest drop since September 2009 as receipts fell across the board.

The shockingly weak report led to economic growth estimates for the fourth-quarter being cut to below a 2.0 percent annualized rate, with the Atlanta Fed forecasting a 1.5 percent growth, much below its previous forecast of 2.7 percent about a week ago.

Kazushige Kaida, head of foreign exchange at State Street in Tokyo, said he was “very surprised” by the U.S. retail sales data.

“The extraordinary weakness, however, appears to be owing in part to the government shutdown, though the exact extent of its impact is not clear,” he said.

“It would be premature to think the U.S. economy has lost steam completely. We have to wait for figures in the next couple of months,” Kaida said.

The collapse in retail sales came along with data showing an unexpected increase in the number of Americans filing claims for unemployment benefits last week.

The closely-watched four-week average of the volatile data rose to the highest level in more than a year

That prompted Fed fund futures to price in a small chance, about 15 percent, of a rate cut this year.

U.S. Federal Reserve Governor Lael Brainard said the central bank should stop paring its balance sheet by the end of this year.

Daisuke Uno, chief strategist at Sumitomo Mitsui Bank, said the Fed “appears to be laying the ground work to end its balance sheet reduction early”.

The 10-year U.S. Treasuries yield fell to 2.655 percent, wiping out most of their rise this week.

In the currency market, the weak U.S. data dented the dollar.

The U.S. currency fetched 110.50 yen, stepping back from Thursday’s seven-week peak of 111.13.

The dollar’s weakness saved the euro from testing its 2018 low of $1.1216. The common currency stood at $1.1295 after having fallen to $1.1248 on Thursday following economic data showing Germany’s economy stalled in the fourth quarter.

The British pound slipped to $1.2800, after touching a near one-month low of $1.2773 after Prime Minister Theresa May lost a symbolic Brexit vote in parliament, weakening her hand as she seeks to renegotiate her withdrawal agreement with Brussels.

Traders are waiting for results of a meeting on Friday between the Trump administration’s top two negotiators and Chinese President Xi Jinping in Beijing.

There has been no decision to extend a March 1 U.S. deadline for a deal, White House economic adviser Larry Kudlow said on Thursday.

Oil prices found support as top exporter Saudi Arabia said it would cut crude exports and deliver an even deeper output cut.

Brent crude futures rose to as high as $64.81 per barrel, their highest level in 12 weeks, on Thursday.

U.S. crude futures rose 0.9 percent in early Friday trade to $54.89 per barrel.

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Asian shares doze in data lull, New Zealand dollar takes a dive

SYDNEY (Reuters) – Asian share markets were in a muted mood on Thursday and looked set for a sleepy session with China still on holiday and no major economic data on the diary.

MSCI’s broadest index of Asia-Pacific shares outside Japan was little moved in early trade after ending almost unchanged on Wednesday.

Japan’s Nikkei dipped 0.2 percent, while E-Mini futures for the S&P 500 were off 0.06 percent in very thin trade.

Wall Street had already snoozed through a subdued session, though disappointing revenue forecasts hammered shares of the major videogame makers.

Electronic Arts Inc tumbled 13.3 percent and Activision Blizzard Inc sank 10.1 percent.

The Dow fell 0.08 percent, while the S&P 500 lost 0.22 percent and the Nasdaq 0.36 percent.

Markets are still waiting on developments in the Sino-U.S. trade dispute after President Donald Trump offered little new to chew on in his State of the Union speech.

U.S. Treasury Secretary Steven Mnuchin said on Wednesday that he and other U.S. officials will travel to Beijing next week for trade talks, aiming to clinch a deal to avert a March 2 increase in U.S. tariffs on Chinese goods.

WE’RE ALL DOVES NOW

In currency markets, the early mover was the New Zealand dollar which slid after local data showed unemployment, job gains and wages growth all missed forecasts.

“The figures present a more modest picture of the labor market over the last year,” said Michael Gordon, senior economist at Westpac. “Soft jobs growth and hours worked increase the risk of another weak economic print in the December quarter.”

The kiwi slid to $0.6772, losing 1.6 percent in the past 24 hours, as investors narrowed the odds on a cut in interest rates. Bonds rallied hard, with two-year yields dropping 7 basis points to 1.67 percent, well below the 1.75 percent cash rate.

The Reserve Bank of New Zealand holds its first policy meeting of the year next week and markets are wagering it will take a dovish stance.

Its neighbor, the Reserve Bank of Australia (RBA), caused ripples on Wednesday when it tempered a long-standing tightening bias and indicated the next move in rates could just as well be down as up.

The Aussie dollar duly dived 1.8 percent to stand at $0.7110 and gave a broad fillip to the U.S. dollar.

The dollar index has now risen for five straight sessions to reach 96.400, recovering almost all the losses suffered after the Federal Reserve all but abandoned plans for more rate hikes.

Less lucky was the euro, which was dragged back to $1.1366 in the wake of a dismal reading on German industrial output.

The dollar could make no headway on the yen, which benefited from its own safe-haven status, and idled at 109.93.

It broad gains still put pressure on gold, which eased to $1,306.84 per ounce, slipping further from last week’s top of $1,326.30.

Oil prices were underpinned by signs of strong U.S. demand for distillate products and tightening global crude supply.

Brent crude futures gained 71 cents higher on Wednesday to settle at $62.69 and were yet to trade. U.S. crude eased 6 cents in Asia to $53.95 a barrel.

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Asian stocks extend gains on firm Wall Street, Fed outlook

TOKYO (Reuters) – Asian stocks extended gains on Tuesday as overnight strength on Wall Street and the Federal Reserve’s cautious turn underpinned appetite for riskier assets, while the dollar held firm on last week’s upbeat U.S. data.

MSCI’s broadest index of Asia-Pacific shares outside Japan advanced 0.4 percent and hovered near its four-month high marked on Friday.

Japan’s Nikkei average .N225 was flat on the day but at its highest level in seven weeks.

Australian shares jumped 2.2 percent, with long-battered financials surging on short-covering after a special government-appointed inquiry excoriated Australia’s financial sector for misconduct but left the structure of the country’s powerful banks in place.

Elsewhere in Asia, trade was light, with markets in greater China, Taiwan, South Korea, Singapore and Indonesia all closed for the Lunar New Year.

On Wall Street, the S&P 500 gained, with technology and industrials the biggest winners as investors braced for another big week of fourth-quarter corporate earnings reports.

After the bell, Google operator Alphabet fell about 3 percent as its higher spending in the fourth-quarter worried investors even as its revenue and profits beat the Street’s expectations.

MSCI’s gauge of stocks across the globe reached a two-month high, having risen more than 13 percent from its near two-year low late in December, helped by the Fed’s change of tack.

Fed Chairman Jerome Powell has signaled its three-year tightening drive may be coming to an end amid a suddenly cloudy outlook for the U.S. economy due to global growth concerns and the U.S.-China trade dispute.

The Fed said in a statement that Powell had told President Donald Trump and Treasury Secretary Steven Mnuchin late on Monday that “the path of policy will depend entirely on incoming economic information.”

Data announced on Friday showed U.S. job growth surged in January while a key gauge of U.S. manufacturing sector showed surprising resilience after December’s shocking fall, allaying fears the U.S. economy might be losing momentum quickly.

Hiroshi Nakamura, senior manager of investment planning at Mitsui Life Insurance, said financial markets’ positive reaction to the U.S. data is diminishing with time, but hopes for a U.S.-China trade deal “will continue to support markets until the two sides come to formal decisions”.

The dollar was on a firm footing as investors continued to lap-up Friday’s strong payrolls number and a manufacturing survey.

The dollar’s index against six major currencies was little changed at 95.833, having gained 0.27 percent on Monday.

The euro was also steady at $1.1436, off three-week high of $1.15405 set on Thursday.

The greenback firmed to 109.98 yen , having risen to 110.165 overnight, its highest level in five weeks.

The British pound barely moved and was at $1.3038.

On Monday, sterling quickly erased brief gains following a newspaper report that goods shipped to Britain from the European Union could be waved through without checks in the event of a “no-deal” Brexit.

The Australian dollar gained 0.3 percent to $0.7247, erasing earlier losses, following the Reserve Bank of Australia left policy unchanged at its first meeting of this year but sounded less dovish than expected.

Earlier on Tuesday, it fell as much as 0.5 percent after a slump in retail sales reinforced concerns about slowing growth in Australia.

In commodity markets, oil prices inched up, buoyed by expectations of tightening global supply amid U.S. sanctions on Venezuela and production cuts led by OPEC.

U.S. West Texas Intermediate (WTI) crude futures rose 0.5 percent to $54.82 a barrel, after hitting a 2-1/2-month high of $55.75 in the previous session, while Brent crude futures were last up 0.4 percent at $62.77.

Gold prices held near one-week lows hit in the previous session, pressured by a firmer dollar and as investor appetite for riskier assets picked up.

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Asia stocks scale four-month peak as Fed turns more cautious; dollar sags

TOKYO (Reuters) – Asia stocks rose to a four-month high on Thursday after the Federal Reserve pledged to be patient with further interest rate hikes, signaling a potential end to its tightening cycle amid signs of slowing global growth.

The dollar struggled near a three-week trough against its major peers and U.S. Treasury yields were significantly lower as investors reacted to the Fed’s change in tone.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose to its highest since Oct. 4 and was last up 0.7 percent.

Japan’s Nikkei rose 0.9 percent.

The Shanghai Composite Index climbed 0.8 percent despite data showing China’s factory activity contracted for a second straight month amid weakening orders.

Australian stocks edged up 0.1 percent.

The Fed on Wednesday held interest rates steady as expected, and also discarded its promises of “further gradual increases” in interest rates.

The central bank said it would be “patient” before making any further moves amid a suddenly cloudy outlook for the U.S. economy due to global growth risks and impasses over trade and government budget negotiations.

On Wall Street, the Dow and the Nasdaq rallied 1.7 percent and 2.2 percent, respectively, on hopes the Fed’s pause would give the U.S. economy and corporate profits more room to run.

Late in December the Dow had sunk to its lowest level since September 2017, dogged by factors including worries over cooling economic growth and trade tensions, adding pressure on the Fed to reassess its tightening bias.

“The Fed’s statements firmly confirmed its dovish stance, which had already been on display at the start of the year. Market concerns towards the Fed’s rate hikes have now been put to rest,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.

“The mention of the balance sheet by the Fed was a positive surprise. The focus now shifts immediately to U.S.-China trade talks, but the equity markets could have enough cushioning to withstand negative news from the talks.”

The U.S. central bank also said on Wednesday that its balance sheet would remain larger than previously expected.

However, while market expectations for Fed tightening may have waned significantly, some analysts suggested rate hikes still remained a near-term possibility.

“While many of the risks to the U.S. outlook remain in place, there is little to suggest that the outlook has changed by as much as the Fed communication says it has,” wrote Michael Gapen, chief U.S. economist at Barclays.

“We worry that the Fed has traded near-term support for financial markets and the economy for another round of volatility later this year if it is forced to lift rates higher, which remains more likely than not, in our view.”

With the Fed decision out of the way, investors focused their attention on a pivotal round of high-level U.S.-China trade talks which began on Wednesday aimed at easing a months-long tariff war.

The two-day talks in Washington are expected to be tense, with little indication so far that Chinese officials are willing to address core U.S. demands to fully protect American intellectual property rights and end policies that Washington has said force U.S. companies to transfer technology to Chinese firms.

If the two sides cannot reach a deal soon, Washington has threatened to more than double tariffs on Chinese goods on March 2.

In currencies, the dollar index against a basket of six major currencies struggled near a three-week low of 95.253 brushed on Wednesday, when it had sunk 0.5 percent.

A weaker dollar helped nudge the euro to $1.1501 on Wednesday, its highest since Jan. 11, and the common currency was last up 0.15 percent at $1.1493 .

The greenback was down 0.15 percent at 108.88 yen and close to a two-week low of 108.81 reached overnight.

The pound was steady at $1.3117 , given some reprieve after slipping earlier in the week when British lawmakers voted down a proposal in parliament that could have prevented a potentially chaotic “no-deal” Brexit.

The benchmark 10-year U.S. Treasury yield extended its decline to as far as 2.674 percent, its lowest since Jan. 14.

Oil prices rose after U.S. government data showed signs of tightening supply and as investors remained concerned about supply disruptions following U.S. sanctions on Venezuela’s oil industry.

U.S. crude oil futures were up 0.7 percent at 54.59 per barrel.

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Asian shares go flat as China data disappoints

SYDNEY (Reuters) – Asian shares crept back from four-month highs on Friday as a dismal survey on Chinese factory activity dulled optimism about the prospects for a Sino-U.S. deal on tariffs.

The Australian dollar, a liquid barometer of investor sentiment toward China, skidded 0.5 percent after the Caixin/Markit index of manufacturing fell to its lowest since February 2016. That was more downbeat than the official version of the index and inflamed fears for the economy.

Investor caution is also mounting ahead of U.S. jobs data later in the session with analysts unsure what impact the government shutdown might have had employment.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.2 percent, though that followed a stellar 7.2 percent gain in January.

Japan’s Nikkei went flat, while Shanghai blue chips held onto a 0.7 percent gain. E-Mini futures for the S&P 500 eased 0.1 percent and spread betters pointed to a marginally mixed start for European bourses.

Stocks had taken heart after U.S. President Donald Trump said he would meet with Chinese President Xi Jinping soon to try to seal a comprehensive trade deal as the top U.S. negotiator reported “substantial progress” in the talks.

Beijing’s trade delegation said the talks made “important progress” for the current stage, China’s official Xinhua news agency reported on Friday.

The previously upbeat mood was also chilled somewhat by White House insistence that March 1 was a hard deadline for a deal, a failure of which would lead to an increase in U.S. tariffs on Chinese goods.

“Analysts mostly remain deeply skeptical that a genuine trade deal can be done on this time frame,” economists from Commonwealth Bank of Australia said in a note.

“We are less pessimistic since these negotiations are being conducted by senior politicians, not by trade bureaucrats,” they added. “Both sides also have an incentive, and arguably a growing incentive, to get a meaningful deal done.”

The optimism supported Wall Street with the S&P 500 ending Thursday with a gain of 0.86 percent. The Nasdaq jumped 1.37 percent on the back of a near 11 percent rise in Facebook Inc. The Dow slipped 0.06 percent.

Over January, the S&P 500 rose 7.9 percent, its best monthly performance since late 2015 and its strongest start to a year since 1987. The Nasdaq gained 9.7 percent in the month and the Dow rose 7.2 percent.

FED’S ABOUT-FACE

Equity markets have also been relieved by a change of heart at the U.S. Federal Reserve, which this week surprised many by all but abandoning plans for further rate hikes.

Investors responded by pricing in a one-in-three chance that interest rates could actually be cut this year.

Yields on two-year Treasuries were down almost 15 basis points on the week so far, which if sustained would be the largest weekly decline since mid-2010.

That in turn has been a drag on the U.S. dollar, though it was off its lows on Friday. It was down 0.6 percent so far this week against the yen at 108.85, but found some support around 108.50.

Against a basket of currencies, the dollar was a fraction firmer at 95.622 thanks in part to a pullback in the euro to $1.1439.

The single currency had taken a knock when Bundesbank president Jens Weidmann painted an unusually bleak picture of the German economy, saying the country’s slump will last longer than initially thought.

Gold prices hovered just short of nine-month highs supported by the fall in bond yields and expectations for a softer dollar. Spot gold stood at $1,318.44 per ounce, having touched a top of $1,326.30.

Oil prices were subdued as the poor China data offset signs major exporters were quickly reducing output in line with a pact to cut supply.

U.S. crude futures edged up 5 cents to $53.87 per barrel, while Brent rose 13 cents to $60.97. [O/R]

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Asian shares inch up after Apple earnings, CEO comments

TOKYO (Reuters) – U.S. stock futures and Asian equities eked out modest gains on Wednesday as investors seized on Apple Inc’s earnings and comments from its chief that U.S.-China trade tensions were easing, sending the iPhone maker’s shares soaring in after-hours trade.

Sterling smarted from a 0.7 percent fall the previous day after British lawmakers rejected most amendments that sought to avoid Britain leaving the European Union without a deal, reviving worries of a chaotic withdrawal from the European Union.

S&P 500 e-mini futures tacked on 0.1 percent in early trade while MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.05 percent

Japan’s Nikkei rose 0.2 percent before erasing gains.

On Tuesday Wall Street shares dipped, with S&P 500 losing 0.15 percent as technology-related shares were dogged by a string of weak earning results while a rebound in 3M and other industrials helped the Dow Jones Industrial Average squeeze out small gains.

Apple shares rose 5.7 percent after the bell as the iPhone maker reported sharp growth in its services business.

Investors were relieved that there was no fresh bad news after the company shocked financial markets at the start of this month when its rare revenue warning sparked fears the U.S.-China trade tensions are taking a toll on the once high-flying tech sector.

CEO Tim Cook, who is in regular contact with U.S. President Donald Trump, also said trade tension between the United States and China is easing in January.

That helped to boost optimism around current high-level trade talks between the two countries, even though many investors remain skeptical whether the economic giants can bridge their differences over a number of issues, including intellectual property rights and technology transfers.

China’s Vice Premier Liu He is in Washington this week to meet U.S. officials, including Trump.

U.S. Treasury Secretary Steve Mnuchin said on Tuesday he expected to see significant progress in talks with Chinese officials and that U.S. charges against telecommunications giant Huawei Technologies Co Ltd were a separate issue.

“It seems December was the worst month and since then things might be starting to recover a bit. If we can see more such evidence, market sentiment will be bolstered,” said Nobuhiko Kuramochi, chief strategist at Mizuho Securities.

“Yet, it’s still not clear how strong any such recovery would be. I would bet markets will be range-bound from here,” he said.

Investors are also looking to the outcome of the Federal Reserve’s rates review later in the day, with expectations policymakers will reinforce their recent dovish stance given signs of a slowdown in the U.S. economy.

In the currency market, the British pound fell 0.67 percent on Tuesday and was last up 0.1 percent at $1.3078, off three-month highs of $1.3218 touched on Friday.

British lawmakers on Tuesday instructed Prime Minister Theresa May to reopen a Brexit treaty with the European Union to replace a controversial Irish border arrangement – and promptly received a flat rejection from Brussels.

“The possibilities of no Brexit and of an extension of the Article 50 deadline have fallen. Markets may be under-estimating the chances that we could have a hard Brexit,” said Takafumi Yamawaki, head of Japan FX and rates research at JPMorgan Securities.

Other currencies were little moved. The euro changed hands at $1.1438, having risen to a two-week high of $1.14505 on Tuesday.

The dollar was steady against the yen at 109.37 yen.

In contrast, gold rose to 8-1/2-month highs of $1,312 per ounce, helped by flight-to-quality bids.

Oil prices held firm after the United States imposed sanctions on state-owned Venezuelan oil company PDVSA, a move likely to reduce the OPEC member’s crude exports and relieve some global oversupply worries.

U.S. crude futures rose more than 2 percent on Tuesday and last stood at $53.21 per barrel.

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Asia shares edge up, pound gets moment's peace

SYDNEY (Reuters) – Asian shares crept higher on Thursday as upbeat bank earnings bolstered Wall Street, while an anti-climactic end to the latest chapter in the Brexit saga gave sterling a moment’s peace.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS edged up 0.1 percent, with Australia was ahead by 0.2 percent.

Nikkei futures JNIc1NKc1 pointed to an opening rise of around 0.5 percent for the cash index .N225. E-Mini futures for the S&P 500 ESc1 firmed 0.6 percent.

On Wall Street, strong earnings from Bank of America (BAC.N) and Goldman Sachs (GS.N) eased worries about the earnings outlook. Bank of America shares jumped 7.2 percent and Goldman 9.5 percent. [.N]

The Dow .DJI ended Wednesday with gains of 0.59 percent, while the S&P 500 .SPX added 0.22 percent and the Nasdaq .IXIC 0.15 percent.

Investors in Asia might be less encouraged by a Wall Street Journal report that U.S. federal prosecutors were investigating Huawei Technologies, the world’s largest telecommunications equipment maker, for allegedly stealing trade secrets from U.S. businesses and could soon issue an indictment.

Such a move could inflame tensions between Beijing and Washington and make a trade deal yet harder.

China’s central bank on Wednesday moved to avert a cash crunch in the economy by injecting a record $83 billion into the country’s financial system.

Also looming in the background were concerns the U.S. government shutdown was starting to take a toll on its economy.

White House economic adviser Kevin Hassett said the shutdown shaved 0.13 percent off quarterly economic growth for each week it goes on.

PLAN B

As expected, British Prime Minister Theresa May narrowly won her confidence vote and invited other party leaders for talks to try to break the impasse on a Brexit divorce deal.

An outline for Plan ‘B’ is due by Monday and the market assumes there will have to be an extension of the Article 50 exit date past March 29.

“Nothing has happened in the last 24 hours to dissuade us from the view that we are headed in the direction of an Article 50 delay, a softer Brexit or no Brexit,” said Ray Attrill, head of FX strategy at NAB.

“But it remains too soon to be buying sterling with your ears pinned back,” he added, noting many uncertainties remained.

All of which left the pound firm at $1.2881 GBP=, though still short of Monday’s peak at $1.2929. It fared well on the euro, which hit a seven-week low before steadying at 88.45 pence EURGBP=.

The lessening of Brexit risk pressured the safe-haven yen and helped the U.S. dollar up to 109.10 JPY=. The euro eased back to $1.1394 EUR= while the dollar index nudged up to 96.077 .DXY.

In commodity markets, palladium XPD= hit record highs thanks to increasing demand and lower supply of the metal used in auto catalysts. Spot gold XAU= held steady at $1,293.68 per ounce.

Brent crude LCOc1 futures rose 66 cents to $61.30 a barrel overnight, while U.S. crude CLc1 was last off 7 cents at $52.24.

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Asia stocks at one-month high, focus stays on U.S.-China trade talks

TOKYO (Reuters) – Asian stocks inched higher to one-month highs on Friday, after Federal Reserve Chairman Jerome Powell reiterated the U.S. central bank can be patient on raising interest rates further.

But the rally’s momentum slowed partly as investors sought more clarity on whether the United States and China could make headway on their talks on trade as well as intellectual property (IP) rights. U.S. President Donald Trump had earlier on Thursday said that Washington was having “tremendous success” in its trade negotiations with China.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS edged 0.2 percent higher, while Japan’s benchmark Nikkei .N225 advanced 1.1 percent in early trade.

Wall Street extended its rally into a fifth straight day on Thursday in a whipsaw trading session as investors responded to mixed comments by Powell, while a warning from Macy’s (M.N) pummeled retail stocks. [.N]

At the Economic Club of Washington, Powell reiterated the views of other policymakers that the Fed would be patient about interest rate hikes.

Major U.S. stock indexes also quickly recovered from brief losses after Powell said that the Fed’s balance sheet would be “substantially smaller”.

“The word ‘patient’ is used often when the Fed’s policy direction is still tightening but its next rate hike can wait for a considerable time. So risk assets now enjoy support from what we can call Powell put,” said Tomoaki Shishido, economist at Nomura Securities.

“Similarly, Trump also softened his stance on China after sharp falls in stock prices. He has offered an olive branch to China and there’s no reason China would not want to accept it,” he said.

U.S. and Chinese officials are working on arrangements for higher-level trade talks after mid-level officials this week discussed U.S. demands on issues that would require structural change in China to address issues such as IP theft, forced technology transfers and other non-tariff barriers.

U.S. Treasury Secretary Steven Mnuchin said late on Thursday that Chinese Vice Premier Liu He will “most likely” visit Washington later in January for trade talks.

In the foreign exchange markets, the dollar rebounded after hitting three-month lows against major currencies.

The dollar index .DXY, which measures the greenback against a basket of six of its peers, rallied from its three-month low, after the Powell comments.

The euro last traded at $1.1515 EUR=, while the dollar fetched 108.39 yen JPY=.

U.S. Treasury debt prices erased early gains after a soft 30-year bond auction and in reaction to Powell’s comments on the Fed “substantially” reducing the size of its balance sheet.

The 10-year U.S. Treasuries yield last stood at 2.737 percent US10YT=RR.

Crude prices held near one-month highs, but a more than week-long in oil rally slowed as optimism surrounding U.S.-China trade talks faded a little. [O/R]

In early Asian trade, West Texas Intermediate crude futures CLc1 slipped 0.7 percent to $52.23 per barrel.

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Most Asia shares inch up as signals on trade talks awaited

TOKYO (Reuters) – Asian shares edged up on Thursday on a weaker dollar and hopes of more economic stimulus in China, but many stocks seesawed as markets awaited some details on this week’s U.S.-China trade talks amid hopes an all-out trade war can be averted.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.2 percent, hovering at a near four-week high, helped by a fall for the dollar.

Japan’s Nikkei closed 1.3 percent lower.

European stocks are expected to open lower. Spread-betters looked for Britain’s FTSE to be 0.2 percent lower, France’s CAC off 0.5 percent and Germany’s DAX down 0.4 percent.

Wall Street’s S&P 500 rose 0.41 percent on Wednesday, extending its gains from 20-month lows touched around Christmas to more than 10 percent.(Asian stock markets: tmsnrt.rs/2zpUAr4)

But E-Mini futures for the S&P 500 were down half a percent.

Weak Chinese inflation data raised the prospect of further government stimulus but China’s blue-chip CSI 300 went back into the red, losing 0.2 percent, and Hong Kong’s Hang Seng struggled to maintain a small gain.

Delegations from China and the United States ended three days of trade talks in Beijing on Wednesday in the first face-to-face negotiations since both sides agreed to a 90-day truce in their trade war.

China’s commerce ministry said on Thursday the talks were extensive, and helped establish a foundation for the resolution of each others’ concerns.

However, there were few concrete details on the meetings, which were not at a ministerial level, so were not expected to produce a deal to end the trade war.

Risk assets extended a days-long rally overnight after minutes from the Federal Reserve’s December meeting showed that many policymakers believed they could be patient about future U.S. monetary tightening, while a few did not support the central bank’s rate increase last month.

WEAK CHINA DATA

Figures out of China on Thursday showed the country’s consumer prices and factory-gate inflation both increased less than expected in December, with the latter rising at the slowest pace in over two years.

The pace of month-on-month increases in factory-gate inflation declined for a second straight time.

“If this trend persists, it may turn negative on year-on-year terms this year and more radical stimulus measures, such as benchmark interest rate cuts, may become possible,” said Betty Wang, senior China economist at ANZ Research.

Oil also caught investors’ attention after U.S. crude and Brent jumped overnight, helped by optimism that Sino-U.S. trade tensions are easing, while OPEC-led crude output cuts also provided support.

U.S. West Texas Intermediate crude futures on Wednesday gained almost 5.2 percent, while Brent crude futures rose more than 4.6 percent, extending a rally that has pushed futures up about 14 percent this year.

Both benchmarks gave up some of their recent gains on Thursday. U.S. crude was last trading 59 cents lower at $51.76 a barrel, down 1.15 percent. Brent lost 57 cents to $60.87, off 0.93 percent.

Chris Weston, Melbourne-based head of research at foreign exchange brokerage Pepperstone, said he viewed more gains in oil prices as a key driver for any further rise in risk appetite.

If U.S. crude futures can break through the $55 level, “you’re going to see real yields probably lower. That’s really good for the cost of money and taking some further headwinds out of the U.S. dollar,” he said.

U.S. Treasury yields last stood at 2.699 percent, down from 2.710 percent at the U.S. close on Wednesday.

The dollar remained on the defensive after hitting its lowest level since mid-October amid the signs Fed policymakers are becoming more cautious about future rate hikes and as investors unwound safe-haven bets due to optimism over the trade talks.

The yuan strengthened, breaching the key 6.8 per dollar level for the first time since August in both onshore and offshore trade.

The greenback was down a tenth of a percent against the euro at $1.1556. The single currency gained 0.9 percent against the dollar during the previous session, its biggest one-day gain since late June.

Against a basket of six major rivals, the dollar briefly dipped to 95.029, its lowest since Oct. 16, and was last down 0.1 percent.

The dollar lost 0.2 percent against the yen, a safe-haven currency that’s often preferred by traders during times of market and economic stress.

The Canadian dollar retreated in line with oil prices, and last traded down 0.2 percent at C$1.3232. It had risen to a five-week high during the previous session.

The Bank of Canada held interest rates steady as expected on Wednesday but said more increases would be necessary even though low oil prices and a weak housing market will harm the economy in the short term.

In commodity markets, spot gold was 0.2 percent higher at $1,296.40, edging towards a near seven-month peak of $1.298,60 scaled on Friday.

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Asian shares edge up on U.S.-China trade optimism, oil climbs

TOKYO (Reuters) – Asian shares inched up on Wednesday, supported by optimism the United States and China can strike a trade deal to avoid an all-out confrontation that will severely disrupt the global economy.

Japan’s Nikkei .N225 rose 0.9 percent while MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS gained 0.3 percent.

Wall Street’s S&P 500 .SPX gained 0.97 percent on Tuesday, extending its gains from 20-month lows touched around Christmas to more than 9 percent.

The United States and China will continue trade talks in Beijing for an unscheduled third day on Wednesday, amid signs of progress on issues including purchases of U.S. farm and energy commodities and increased access to China’s markets.

Bloomberg also reported on Wednesday that U.S. President Donald Trump is increasingly eager to strike a deal with China soon in an effort to perk up financial markets that have slumped on concerns over the trade war, citing people familiar with internal White House deliberations.

The rally in risk assets has accelerated since last Friday, when Federal Reserve Chairman Jerome Powell said he was aware of risks to the economy and would be patient and flexible in policy decisions this year.

“Markets are scaling back some of their extreme nervousness after Powell effectively did some easing, with his words. But short-covering could run its course soon,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

“Hopes on U.S.-China trade talks are helping. Some sort of deals are likely to increase Chinese imports of natural gas, soybeans and so on from the U.S. Yet, it should be hard to resolve more structural issues such as intellectual property rights,” he added.

Oil prices also extended their rallies on hopes of progress in the trade talks.

U.S. West Texas Intermediate (WTI) crude oil futures CLc1 rose above $50 per barrel for the first time in 2019 to stand at $50.17, up 0.7 percent.

U.S. bond yields also rose further, with the benchmark 10-year Treasuries yield US10YT=RR rising to 2.730 percent, compared with its one-year low of 2.543 percent hit just before Friday’s strong payrolls data.

In another sign of subsiding worries about the U.S. economic outlook, Fed funds rate futures <0#FF:> have priced in a small chance of a rate hike this year, a sea change from late last week when a rate cut was almost fully priced in.

In the currency market, the dollar was little changed against major currencies.

The euro traded at $1.1455 EUR= while the dollar stood at 108.81 yen JPY=.

Traders are looking to Trump’s prime-time televised address at 9 p.m. (0200 GMT Wednesday), where he is expected to make his case that a border wall is urgently needed despite opposition from Democrats.

That suggests the dispute on the issue, which has sparked a government shutdown since late December, is nowhere near a resolution.

Trump has considered declaring the border situation a national emergency, which could enable him to bypass Congress’ mandate to approve federal spending and to build the wall without its approval.

Such a step, however, would likely face an immediate legal challenge and could lead to further polarization in the U.S. political environment.

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