Stocks relieved at trade truce, bonds step back
2 July, 2019, 2:00 am
SYDNEY (Reuters) – Stocks rallied and bonds retreated in Asia on Monday as a thaw in the Sino-U.S. trade dispute averted one threat to the global economy, leading investors to pare wagers on aggressive policy easing by the major central banks.
The dollar firmed modestly on the safe-haven yen as Treasury yields rose and futures reined in bets for a half-point rate cut from the U.S. Federal Reserve this month.
“The Trump-Xi G20 meeting looks to be a modest win for China and a positive for risk assets short term, but well within the range of expected outcomes,” said Westpac economist Richard Franulovich.
“Fed cut expectations are likely to see a sustained trimming, though more so for their meeting on July 31 than over the next year,” he added. “A 50 basis point rate cut seems very unlikely.”
The initial reaction was one of relief that new tariffs were avoided and Japan’s Nikkei climbed 1.6% to a two-month top. MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.4%.
Chinese blue chips climbed 2.1% to their highest since late April. E-Mini futures for the S&P 500 rose 0.8% and FTSE futures 0.5%.
Treasury futures slid 10 ticks as yields on 10-year notes edged up 3 basis points to 2.03%.
Fed funds dropped over 5 ticks as the market scaled back the probability of a half-point rate cut this month to around 13%, from nearer 50% a week ago.
The United States and China agreed on Saturday to restart trade talks after President Donald Trump offered concessions to his Chinese counterpart Xi Jinping when the two met at the sidelines of the G20 summit in Japan over the weekend. These included no new tariffs and an easing of restrictions on tech company Huawei in order to reduce tensions with Beijing.