Asian shares near July peak as optimism grows on trade, economy

Asian shares approached their July peak on Tuesday on signs the United States and China are inching closer to a truce in their trade war and on optimism the U.S. economy is poised for solid, consumer-driven growth. MSCI`s broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> ticked up 0.1% after hitting a four-month high the previous day. China`s mainland shares were little changed <.SSEC> while Japan`s Nikkei <.N225> rose 1.34% to one-year high after a market holiday on Monday.

On Wall Street, the S&P 500 <.SPX> gained 0.37% to a record high of 3,078.27 on Monday while the Dow Jones <.DJI> and the Nasdaq <.IXIC> also clinched all-time highs. In Europe, shares rallied more than 1%, with many reaching their highest level since January 2018. The STOXX 600 index <.STOXX> of small, mid-sized and large companies across Europe surged to highs last seen in July 2015.

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U.S. S&P500 futures gained a further 0.2% in Asia after the Financial Times reported on Tuesday that the United States is considering rolling back levies on $112 billion of Chinese imports, which were introduced at a 15% rate on Sept. 1. The story came after Beijing and Washington spoke of progress in trade talks on Friday and U.S. Commerce Secretary Wilbur Ross said licenses for U.S. companies to sell components to China`s Huawei Technologies Co will come "very shortly."

"Economic uncertainties are receding. That means those who had held off their activities, both in the real economy and financial markets, are getting active," said Masaru Ishibashi, joint general manager of trading at Sumitomo Mitsui Bank. Chinese President Xi Jinping said on Tuesday the global community needs to bring down trade barriers.

U.S. employment data released on Friday showed strong job gains despite the drag from a strike at General Motors , offering some assurance that consumers would continue to support the slowing economy. "The data suggests the U.S. is almost in a full employment. More importantly those strong numbers came after three rate cuts by the Fed," said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

"When the Fed did precautionary easing in the past - after Mexico crisis in 1994 and Asia/Russian crisis in 1997-98 - a rally in stock prices followed. No wonder money is flowing to risk assets now," he said. Bonds are losing some of their appeal and the yield on benchmark 10-year notes rose back to 1.799% compared to last week`s low of 1.670%. In the currency market, the dollar gained to 108.60 yen , extending its recovery from 107.89 touched on Friday.

Trade optimism kept the Chinese yuan near its highest levels since mid-August, with the onshore yuan at 7.0259 per dollar , up slightly on the day. The currency maintained gains even after China`s central bank cut its one-year medium-term lending facility (MLF) rate by 5 basis points, for the first time since early 2016. The currency shrugged off the Caixin/Markit services purchasing managers` index (PMI) showing China`s services sector activity expanded at its slowest pace in eight months in October. The euro changed hands at $1.1125 , off last week`s high of $1.1175.
The Australian dollar traded at $0.68805 , staying near one-week low after a dire set of retail sales numbers released on Monday suggested the economy was still struggling despite three cuts in interest rates.

Still, that has did little to change market expectations that the Reserve Bank of Australia is expected to hold fire at its interest rate decision on Tuesday. Oil prices ticked lower in Asia but stayed not far from their highest levels since late September, buoyed by an improved outlook for crude demand as better-than-expected U.S. jobs growth added to market hopes a preliminary U.S.-China trade deal would be reached this month. U.S. West Texas Intermediate (WTI) crude traded at $56.42 per barrel, down 0.21% after having hit a six-week high of $57.43 on Monday.