Asian markets stage rally on upbeat China-US trade news

HONG KONG (AFP) – Asian markets rallied yesterday on much-needed good news on the China-US trade talks, while the pound extended losses as it emerged that Prime Minister Theresa May will face a no-confidence vote.

A flurry of positive developments in the tariffs stand-off between the world’s top economies provided some early Christmas cheer on trading floors, fuelling hopes they can avert an all-out trade war.

Canada on Tuesday released on bail Chief Financial Officer at Chinese telecoms giant Huawei Meng Wanzhou, whose arrest last week sparked fury in Beijing and worries about a truce agreed at the G20 by Donald Trump and Xi Jinping this month.

Providing some extra support to the news of Meng’s release was an interview in which Trump said he could intervene in the case if it helps seal a trade pact with China, adding, “Whatever’s good for this country, I would do.”

China added to market-friendly noise by saying it had agreed to cut tariffs on US autos to 15 per cent from 40 per cent – wiping out a levy imposed earlier this year in response to US measures.

A visitor walks by the screen showing the Korea Composite Stock Price Index (KOSPI) at the Korea Exchange in Seoul, South Korea. – AP

Investors welcomed the headlines – despite news China had detained a former Canadian diplomat who served in Beijing – fuelling a surge in regional markets.

Tokyo ended 2.2 per cent higher and Shanghai finished up 0.3 per cent, while Hong Kong jumped 1.6 per cent.

Sydney and Seoul each jumped 1.4 per cent, while Taipei climbed 1.1 per cent, Wellington put on 0.8 per cent and Mumbai gained one per cent.

“Last week, events seemed to conspire to throw the truce into disarray, but the underlying incentives of both sides at the moment are to try to maintain that truce,” Chief Asia Economist at Pantheon Macroeconomics Freya Beamish told Bloomberg News.

“Now we are seeing the possibility that China will come through with reductions of tariffs on US autos, and that’s another good, concrete step.”

Car firms across Asia tracked gains in their US counterparts as the China tariffs news lifted optimism in the auto market, with Hyundai 5.3 per cent higher in Seoul while in Tokyo Toyota was up more than two per cent and Mitsubishi added almost three per cent.

And energy firms were also well up after data showed a massive drop in US stockpiles, indicating a pick-up in demand to offset worries about a global supply glut that has hurt prices.

Both main crude contracts were more than one per cent higher.

But it is not all rosy.

The pound, already under pressure, extended losses as it emerged that May was to face a vote of no confidence within her Conservative party, with MPs saying they do not believe she can deliver Brexit.

The news came after she delayed Tuesday’s vote on her EU divorce agreement knowing she would lose. She has since been touring European capitals to win concessions that would help push the deal through Parliament but was told by leaders she will not be able to renegotiate, leaving Britain facing an European Union (EU) divorce with no deal.

“If May loses then we could have a leadership contest beginning in earnest,” said Neil Wilson, chief market analyst at Markets.com. “A tussle for the soul of the Tory party would begin and the spectacle will create further uncertainty for investors.”

The pound had already tanked two per cent on Tuesday and – with May now facing a possible leadership challenge, the country another general election and the economy months of uncertainty – it could drop further. No new date has been set for the key vote on her deal to be held.

“The soap opera that is Brexit goes on and it seems with every passing day the chaos is being ramped up a notch, which is starting to take its toll” on the pound, said senior market analyst at OANDA Craig Erlam.

In early trade London’s FTSE rose 0.3 per cent, Paris gained 0.6 per cent and Frankfurt was up 0.5 per cent.

In other forex trade the dollar retreated against most high-yielding currencies as investors grew a little more confident to buy riskier assets. The rupee recovered from Tuesday’s slump fuelled by the resignation of the head of the Indian central bank.

There was also unease in some quarters after Trump threatened to shut down the government if Democrats, who will control the House of Representatives from next month, do not meet his demand for USD5 billion to build a wall between Mexico and the United States.