Asian shares jumped to a one-week high on Friday as the United States and China showed a willingness to resolve their trade dispute by returning to the negotiating table, though lingering recession fears tempered some of the enthusiasm.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose to the highest since Aug. 23, but soon pared some of those gains after Chinese and Hong Kong stock markets turned negative. . The MSCI index was last up 0.8%.
Arrests or detentions of pro-democracy activists in Hong Kong added to investor jitters with the Chinese-ruled territory facing its first recession in a decade.
E-Minis for the S&P500 also turned negative to be down 0.1% after more than 1% gain on Wall Street overnight.
In early European trades, futures for pan-region Euro Stoxx 50 were up 0.15%, German DAX up 0.25% while those for London’s FTSE and France’s CAC 40 were a touch higher.
Japan’s Nikkei jumped 1.2% while South Korea’s KOSPI index gained 1.8% and Australian shares were 0.9% higher.
The mood lifted after U.S. President Donald Trump said some trade discussions were taking place with China on Thursday, with more talks scheduled.
China’s commerce ministry also said a September round of meetings was being discussed by the two sides, but added it was important for Washington to cancel a tariff increase.
The comments spurred hopes for progress in the talks and boosted the Chinese yuan, which on Thursday snapped a 10-day losing streak. On Friday, it was slightly weaker at 7.1525.
“The S&P futures spike is being blamed largely on the China trade headlines along with fiscal stimulus hopes and the prospect for a steeper U.S. curve,” JPMorgan analysts told clients in a note.
“In reality, the headlines are extremely innocuous and don’t differ from what China has said in the past but they crossed during a dead zone of liquidity and attendance and as a result are having an outsized influence on trading.”
Also boosting sentiment, South Korea finalized the most aggressive budget spending plan since the 2008/09 global financial crisis for next year as authorities try to prop-up Asia’s fourth-largest economy amid growing threats both at home and from abroad.
Germany is considering lowering its corporate tax rate while the U.S. government is thinking about issuing 50- and 100-year bonds in a bid to steepen the yield curve.
Trade tensions have dominated market sentiment for much of this year with wild swings in world stocks as rhetoric between the United States and China fluctuates from conciliatory to combative.
Worryingly, recent economic data has also pointed to a global growth slowdown with business investment, manufacturing activity and exports all going south across major economies.
Investors were focused on a string of economic releases due over the weekend including China’s official manufacturing survey, which would provide a good gauge of the real impact from the Sino-U.S. trade war.
“The recent escalation of the tariff war provides no hopes of a near-term trade deal,” ING’s Asia economist Prakash Sakpal wrote.
“As such, we are in for a long stretch of slow growth and increasingly challenging policy environment, as some central bankers have warned.”
Even so, U.S. Treasury yields rose overnight with the benchmark 10-year Treasury climbing to 1.535% from a three-year low of 1.443% touched earlier this week.
It was last at 1.5112% but still below two-year yields at 1.5240%. Such an inversion was last seen in 2007 and correctly foretold the great recession that followed a year later.
Among currencies, the dollar was barely changed at 98.533 against a basket of six major currencies. It was 0.1% lower against the Japanese yen at 106.35 after gains overnight while the euro was 0.2% down at $1.10395.
Sterling eased $1.2178 ahead of a crucial few days for Parliament next week which could even result in a no-confidence motion and a new election.
In commodities, spot gold came off recent highs to trade at $1,529.6 an ounce. Silver was at $18.37 an ounce after hitting its highest level in more than two years.
U.S. crude slipped 52 cents to $56.19 a barrel while Brent fell 39 cents to $60.69 a barrel.