Asia rises as stimulus measures should boost Chinese equities

TOKYO (Reuters) – Asian stocks soared on Wednesday as expectations that Beijing would implement economic stimulus measures following the Sino-US trade war helped Chinese equities to recover.

European companies expect European equities to follow Asia's direction and open up, with UK FTSE up 0.15%, German DAX up 0.2% and French ACC up 0.2% .

The widest MSCI index of Asia-Pacific equities excluding Japan rose 0.95%. Global equities were stable this week as investors pondered the latest escalation of the China-China trade dispute, which some market players say is less serious than expected.

Hong Kong's Hang Seng gained 1.3% and the Shanghai Composite Index gained more than 1% after a 1.8% rise the day before.

Bank of America economists Merrill Lynch wrote that China was likely to soften policies to counter the negative effects of rising tariffs.

"In our opinion, the monetary and fiscal easing measures will probably be deployed to stimulate domestic demand and stabilize the sentiment of the financial markets," they said.

Australian equities added 0.5%, South Korea's KOSPI was little changed, and Japan's Nikkei rose 1.3%.

The Trump administration announced on Monday that it would apply new tariffs of 10 percent on $ 200 billion worth of Chinese products on September 24, with tariffs rising to 25 percent by the end of 2018.

China responded by stating that it would levy tariffs on about $ 60 billion worth of US goods, as planned, but that it would reduce tariff rates.

"There was some relief because the US set the initial tariffs at 10%, rather than the expected 25%, considered by some as a gesture to save time for new negotiations," said Masahiro Ichikawa, chief strategist at Sumitomo Mitsui Asset Management in Tokyo.

While the global market response to the last phase of the trade dispute has been relatively limited, the US-China conflict is expected to accelerate – a major concern for investors.

"In response to China's latest retaliation, Trump is now very likely to respond by adding tariffs to an additional $ 267 billion worth of Chinese products. The trade war will only get worse, "said Yoshimasa Maruyama, chief economist at SMBC Nikko Securities in Tokyo.

"It remains to be seen whether China retains its anger and continues to negotiate with the United States. But if he refuses to do so, we will have to prepare for the trade conflict that will continue in 2019. "

US Treasury Secretary Steven Mnuchin last week invited senior Chinese officials to a new round of talks, but rumors have indicated that Beijing would refuse to attend Washington's latest trade salvo.

LONG-TERM RESULTS AT 4 MONTHS

The Chinese yuan rose 0.15% to 6.8504 per dollar in land trade, supported by Prime Minister Li Keqiang's comments that Beijing would not weaken its currency to boost exports.

The Australian dollar, considered an indicator of risk sentiment, stretched its rise overnight and hit a three-week high of 0.7255 dollars.

US securities have been sold and their returns have risen thanks to investors' increased appetite for risk.

The Treasury's 10-year benchmark return is set at 3.049% after touching 3.059% overnight, its highest level since May 23rd.

Higher yields supported the dollar, which peaked at 112.43 yen over two months.

The yen reacted little to the Bank of Japan's anticipated decision on Wednesday to ensure the stability of monetary policy.

The BOJ also maintained its 10-year Japanese government bond yield target around zero per cent.

The euro rose slightly by 0.05% to 1.1674 dollar.

The pound has shaken modest losses overnight and reached $ 1.3175, its highest level since July 26. Growing confidence in the conclusion of an agreement between Great Britain and the European Union

Crude oil prices strengthened after yesterday's rebound on signs that OPEC would not be ready to increase production to cope with the contraction in Iran's supplies and Saudi Arabia had announced an informal target close to current levels. [O/R]

Brent crude futures remained steady at $ 79.04 a barrel, following a rebound of 1.25% on Tuesday.