Business Maverick

Business Maverick

Asia stocks gain amid optimism over US-China ties: markets wrap

Asia stocks gain amid optimism over US-China ties: markets wrap
People walk in front of the large screen showing the latest stock exchange data, in Shanghai, China, 22 August 2022. (Photo: EPA-EFE/ALEX PLAVEVSKI)

Asian shares rose after US President Joe Biden said relations with China are expected to improve “very shortly”, and as the market awaited possible progress in US debt-limit talks. US futures were little changed. 

Hong Kong’s Hang Seng Index climbed more than 1%, led by technology shares. Historically cheap valuations following consecutive weekly declines added further support. The advance led to a region-wide rally that included Japanese and mainland China shares but excluded Australian blue chips.

South Korea’s Kospi gained as much as 1%, on track for its sixth daily advance. Samsung Electronics Co. and SK Hynix Inc. were among the biggest contributors to the benchmark after China said their US rival Micron Technology Inc. had failed to pass a cybersecurity review.

“I think you’re gonna see that begin to thaw very shortly,” between the US and China, Biden said on Sunday after a G7 summit in Japan. He added that his administration was considering whether to lift sanctions on Chinese Defense Minister Li Shangfu.

Contracts for the S&P 500 edged lower, while those for the Nasdaq 100 were flat after the two benchmarks registered small declines on Friday. Contracts for the Euro Stoxx 50 stayed in a narrow range.

The yen and the Swiss franc rose against most of their major peers, reflecting a degree of demand for havens. A gauge of the dollar crept lower.

Treasuries rose, with the yield on the policy-sensitive two-year note falling three basis points. Australian and New Zealand government bonds were little changed.

Biden and House Speaker Kevin McCarthy are scheduled to meet in Washington on Monday following a “productive” call between the pair over the weekend. Yet one Republican negotiator is insisting on a multi-year spending limit, complicating talks even as default could come as soon as 1 June. 

Traders also remain fixated on the path for Fed’s benchmark rate, with bets for a hike in June trimmed to 25% as Jerome Powell signaled a pause. Minneapolis Fed president Neel Kashkari also said he may support a pause, Dow Jones reported.

Fed pause

“Market pricing is firmly back to thinking the Fed will pause,” Chris Weston, head of research at Pepperstone Group Ltd., wrote in a research note. “The US debt ceiling, and the price action in US banks, are going to dominate the narrative.”

The S&P 500’s drop on Friday halted a two-day rally as it failed to stay above the closely watched level of 4,200. The $3.2 billion SPDR S&P Regional Banking exchange-traded fund slumped almost 2% on a report that Treasury Secretary Janet Yellen told the chiefs of large lenders that more mergers may be needed.

Stocks are primed to drop if the US fails to raise the debt limit and delays government payments. That’s the warning from a team of UBS strategists. Although it’s unlikely, if the US formally defaults and delays all payments beyond principal payments for a week, the S&P 500 will fall as much as 20% toward 3,400, the team led by Jonathan Pingle said.

G7 leaders meeting in Japan agreed to push ahead with efforts to reduce dependence on China for critical supply chains. Hours after Biden’s comments, Beijing announced a ban on Micron Technology Inc. products from key Chinese infrastructure.

Iron ore retreated for a third session on uncertainty about demand from China. Oil extended a two-day drop and gold was flat following a 1% gain on Friday. Bitcoin fell, remaining below $27,000. DM

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