Stocks in Asia gain ahead of another round of trade talks

Summary:

• Asian stock markets start the new week with solid gains hoping for further progress in trade negotiations between the US and China

• US Commerce Department submits its recommendations concerning auto tariffs

• China’s car sales slump in January resulting in the seven month losing streak

Optimism boosts stocks

Major Asian stock markets have kicked off the new week with robust gains despite inconclusive trade talks in Beijing last week. Perhaps Asia-based investors are hoping that another round of these negotiations - scheduled to take place in Washington this week - will bring further progress so as to avoid lifting tariffs. Looking at the Asian scorecard one may notice that the Shanghai Composite has surged 2.4% while the Hang Seng (CHNComp) has moved up a bit more than 2%. The first trading day of this week ended with a 1.8% pick-up in Japan while the major index in Australia has added 0.4%. Due to a holiday in the US the bond market there is closed, hence there are no any indicative signs whether a rally across stock markets in Asian has coincided with a rise in yields. It needs to be notice that performance of EM currencies is mixed this morning albeit slight increases are prevailing. Let us also recall that the US said after the trade negotiations in China that a lot of things still need to be agreed on suggesting that there is still quite a wide gap between both sides.

Despite a solid increase today the China’s Hang Seng has yet to move through its important resistance around 11200 points. Source: xStation5

Auto tariff probe report submitted to White House

On Sunday, the US Commerce Department submitted to the White House the findings of a probe into whether imported vehicles pose a national security threat. Now Donald Trump has 90 days to decide whether he wants to act on the findings. Let us note that the probe covered imports of vehicles including SUVs, vans and light trucks as well as auto parts. Governments and companies seem to share a similar opinion that duties on cars would hurt the US economy and disrupt the global auto industry. The most recent data shows that Mexico was the major supplier of cars into the US. Canada delivered also a notable number of cars to the US in 2017. Looking at the tally below one may arrive at a conclusion that the Japanese automobile sector seems to be much more sensitive to increased tariffs on cars than the European one. Note that Donald Trump has agreed so far to abstain from imposing auto duties on Europe and its both neighbours.

Mexico, Canada and Japan were the largest suppliers of cars into the US in 2017. Source: Bloomberg

In the other news:

• China’s car sales fell 15.8% YoY in January marking the seventh straight month of declining sales

• Theresa May informed that she would meet with European Commission President Jean-Claude Juncker

• Japanese core machine orders fell 0.1% MoM in December after staying unchanged in November

• New Zealand’s services PMI jumped to 56.3 in January from 53.2 in the previous month