Asia markets rise as China-US trade deal buoys sentiment

HONG KONG (AFP) – Most Asian markets rose yesterday following another record-breaking lead from Wall Street, with the China-United States (US) trade deal providing further support, though sterling took a battering as fresh fears of a no-deal Brexit emerged.

Christmas cheer continues to flow through trading floors after last Friday’s agreement between the world’s top two economies ended months of wrangling and removed any immediate uncertainty.

The deal, which will see Washington wind back some tariffs and China ramp up purchases of US goods as well as change its trade practices, sparked a surge in equities that continued on Monday in New York, with all three main indexes ending at all-time highs.

And, while Asia saw a slight wobble on Monday, the optimism seeped into the region in early business, with Hong Kong and Shanghai rallying more than one per cent, while Tokyo ended 0.5 per cent higher.

Seoul also jumped more than one per cent, while there were also gains for Mumbai, Bangkok, Wellington and Jakarta, though Sydney, Singapore and Manila were marginally lower.

But while the news has been met with broad relief, observers point out that the deal is only the first – and easiest – part of a wider agreement many think could take years to complete.

There are also concerns about the lack of detail and questions about how the two sides will implement the pact.

A currency trader walks by the screens showing the Korea Composite Stock Price Index (KOSPI) and the foreign exchange rate between the US dollar and South Korean won. PHOTO: AP

“Some salient doubts remain, of course, about the interim trade deal,” said Jeffrey Halley at OANDA, adding that they also had yet to sign anything.

“The supposed phase-two talks promise to take negotiation complexity to another level in 2020. A fundamental clash of doctrines between East and West on the mechanics of capitalism beckons, and I for one, have serious doubts about as to whether a fabled ‘comprehensive’ deal will emerge next year at all,” he said.

On currency markets the pound took a hit from reports that United Kingdom (UK) Prime Minister Boris Johnson is planning to bring in a law making sure the next phase of Brexit is not extended beyond the end of 2020, reviving fears of a no-deal divorce.

While Johnson, fresh from a stunning election victory, will be able to push through his European Union (EU) agreement before January 31, he will then have to hammer out fresh trading terms.

But there is a fear that the 11-month timeframe he has set himself to complete that is nowhere near long enough, meaning Britain could completely break free without any kind of plan for trading with the bloc.

The reports sent sterling tumbling from USD1.3422 to USD1.3226 before edging back up slightly. The pound had been sitting around 18-month highs in the wake of Johnson’s stunning win, which ended years of political uncertainty.

“The honeymoon of the election is now over and the risks of a potential hard Brexit have been brought forward,” analyst at IG Market Kyle Rodda told Bloomberg News.

“Johnson is taking an assertive stance on Brexit and although a hard divorce may still be in the margins for now, there are increasing risk premiums priced into the pound.”

And Stephen Innes at AxiTrader added that traders had “received the proverbial lump of coal in the holiday stocking”.

In early trade London fell 0.2 per cent, Frankfurt shed 0.3 per cent and Paris was off 0.1 per cent.