Asian stocks extend run-up on trade optimism, ECB easing

Asian equities stretch their recent rally as positive sentiment surrounding the US-China trade deal and the heavy monetary stimulus from the European Central Bank (ECB) tamed fears of the global slowdown.

The US President Donald Trump showed readiness to accept interim deal with China even if his preference for a bigger deal remains intact, signaling a sooner solution to the trade-tussle. Also, the Treasury Secretary Steve Mnuchin also sounds optimistic of progress in the next month’s trade negotiations. Also supporting the optimism is the confirmation of an initial trade negotiation during the next week by China’s Vice Premier Lie Hu.

On the other hand, the ECB announced a 10 basis point rate cut to -0.5%, and open-ended QE of €20 billion per month starting from November 1st. The central bank also downgraded its inflation and growth forecast while introducing a reserve system that would exempt some bank holdings from negative rates.

With this, equities managed to remain strong while Treasury bond yields stretch their latest north-run. MSCI’s index of Asia Pacific shares (ex-Japan) shows 0.4% gains while Japan’s NIKKEI is up more than 1.0% by the press time.

Australia’s ASX 200 has lesser catalysts due to the empty economic calendar and China’s Bank holiday, which holds the index tightly around 0.10% gain, whereas New Zealand’s NZX50 bucks the trend with 0.3% loss. Furthermore, India’s SENSEX is almost unchanged while South Korea’s KOSPI gains nearly 1.0% amid likely solution to the North Korean problem with the US help.

Investors will now focus on the US consumer-centric data, namely August month Retail Sales and Michigan Consumer Sentiment Index for September, for fresh direction while keeping a tab on trade/political headlines. Forecasts suggest weak retail sales confronting upbeat sentiment.