Asian markets enjoy fresh rally with focus on Trump-Xi meeting

Donald Trump warned he would hike tariffs on more Chinese goods if Xi Jinping did not attend a meeting with him at the G20 this month AFP/Nicolas ASFOURI

Donald Trump's decision to drop threatened tariffs on Mexico after a last-minute immigration deal last week sparked relief across trading floors and led to hope that the row with Beijing could also end with some sort of agreement.

The gains, which follow another healthy Wall Street performance, are much needed since the US president shocked markets last month by hiking levies on US$200 billion of Chinese imports, blaming backsliding over their long-running trade talks.

Support is also coming from expectations the Federal Reserve will cut interest rates as soon as next month in response to a string of soft US economic data and concerns about the impact of the China stand-off.

"What continues to grease the wheels of US equity markets and the one constant that keeps the S&P (500) ticking is Federal Reserve free and cheap money, it's long been an established pattern," said Stephen Innes at Vanguard Markets.

But OANDA senior market analyst Edward Moya warned that while lower US central bank rates were a major boost, traders were ultimately keen to see the world's top two economies resolve their trade war.

"The recent global stock market rally has stemmed from expectations that the Fed will come to the rescue with a couple of rate cuts this year," he said in a note. "But that will not likely deliver fresh record highs with the US indexes unless we see a scaling back of tariffs between the US and China."

OIL UNCERTAINTY

Shanghai led the gains, rallying 2.6 per cent after a 0.9 per cent rise Monday, while Hong Kong rose 0.8 per cent, building on Monday's more than two per cent jump.

Tokyo ended 0.3 per cent higher, Sydney climbed 1.6 per cent and Singapore put on 0.7 per cent while Seoul added 0.6 per cent. Wellington was up more than one per cent, with Taipei strengthening 0.4 per cent and Manila advancing 0.5 per cent.

In early trade London rose 0.3 per cent, Paris added 0.1 per cent and Frankfurt jumped 0.7 per cent.

Focus is now on the expected face-to-face between Trump and Chinese President Xi Jinping at the G20 in Osaka at the end of June.

The US president told CNBC on Monday that a meeting had been planned but warned that if Xi did not turn up he would ramp up levies on all Chinese imports.

While expectations are for an agreement to eventually be made - which would be in the interests of both sides - Ray Attrill, head of forex strategy at NAB, said the "meeting is gearing up to be another major 'binary' risk event that should keep markets very edgy in the coming days and weeks".

Oil prices edged up after Monday's drop, which came on the back of uncertainties about an agreement between OPEC and other key producers led by Russia to cap output.

Innes said the market remains burdened by overproduction and waning demand.

"This is a real fear as with China slowing, the EU sickly and the US data starting to wobble, an economic downturn remains a clear and present danger," he said.

He warned prices could "drop to US$40 in a heartbeat" without the OPEC group and Russia agreeing to extend the output cuts.

- Key figures around 0810 GMT -

Tokyo - Nikkei 225: UP 0.3 per cent at 21,204.28 (close)

Hong Kong - Hang Seng: Up 0.8 per cent at 27,789.34 (close)

Shanghai - Composite: UP 2.6 per cent at 2,925.72 (close)

London - FTSE 100: UP 0.5 per cent at 7,408.98

Euro/dollar: UP at US$1.1327 from US$1.1316 at 2040 GMT Friday

Pound/dollar: UP at US$1.2697 from US$1.2686

Dollar/yen: UP at ¥108.57 from ¥108.49

Oil - West Texas Intermediate: UP 59 cents at US$53.85 per barrel

Oil - Brent Crude: UP 38 cents at US$62.67 per barrel

New York - Dow: UP 0.3 per cent at 26,062.68 (close)