Asian markets rally as trade deal prospects resurface

Trade of the Day: stocks rise; US Treasuries, dollar index stabilize; gold, oil weaken

Quote of the Day: “The global economic metrics are horrendous – PMIs and IP data show a falling trend. The only positive data is the US consumption numbers, but that appears unsustainable. Although we have a short-term boost in the form of trade agreement hopes, the outlook for equities over the next 12 months is gloomy. Earnings will have to grow to provide the market with fresh legs in 2020,” said Bratin Sanyal, CIO at Lloyd George Management.

Stock of the day:  Want Want China Holdings, the mainland’s top snack food and dairy products maker, jumped as much as 7% after profits rose by 18% in the first half of the year.

Number of the Day: 9988, the ticker under which Alibaba will trade in Hong Kong, inspired by auspicious numbers in Chinese culture with 8 representing prosperous and 9 representing long.

Tip of the Day:  Z Holdings, the SoftBank-owned operator of Yahoo Japan, has a buy recommendation from Nomura with a target price of 520 yen. This implies a 34% upside from Tuesday’s closing price. Z Holdings, formerly known as Yahoo Japan, and Line Corp formally announced a merger plan shortly before the market open to create a $30 billion tech giant.

Asian markets were broadly higher as hopes of a trade deal between the world’s two largest economies lingered with Washington’s extension for US companies to do business with blacklisted Chinese telecoms group Huawei seen as a sign the two sides were willing to do business.

Hong Kong and Chinese equities outperformed after the Chinese central bank cut its reverse repo rate injecting liquidity into the system. The Hang Seng index rose 1.55% and the Shanghai Composite climbed 0.85%. Healthcare, technology and consumer non-cyclicals were the leading sectors in Hong Kong.

Technology shares remained in the spotlight ahead of next week’s listing of e-commerce behemoth Alibaba. Order books will now close on Tuesday at 12pm in New York (1700 GMT), half a day earlier than initially planned, Reuters reported.

China loosened liquidity in its system even as rating agency Moody’s warned that global credit conditions in 2020 will weaken as a result of growing risks of an economic downturn, trade policy uncertainty and the effects of an unpredictable political and geopolitical environment.

“The global economy will remain fragile in 2020 after recording the lowest global growth in 2019 since the 2009 recession,” Moody’s said in a report published on Tuesday. “Overall global growth will remain lackluster amid a deceleration in the US and China, the main engines of the world’s economic activity.”

Late on Monday, the People’s Bank of China (PBOC) cut the reverse repo rate by 5 basis points to 2.5% and released $26 billion into the financial system. Analysts expect the Chinese central bank to take further easing steps.

“We anticipate another 70 basis points of cuts to the 7-day reverse repo rate by the middle of next year,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

Still, it appears the past month’s global stocks rally could be running out of steam. The MSCI’s ACWI index of large and mid-cap stocks across 23 developed and 26 emerging markets has risen by 5.5% since October 11, since the US and China agreed a deal in principle.

Analysts at Capital Economics say even if a “mini-deal” were finalized, it would only undo a small fraction of the tariffs so far imposed. The most likely scenario is that the average US tariff on imports from China is reduced to around 19%, which is substantially more than the 3% levied prior to the trade war.