Here's What Analysts Say About Friday Rally on Trade Talk Hopes

(Bloomberg) -- Markets from Japan to India extended gains after Bloomberg News reported that President Donald Trump wants to reach a trade agreement with Chinese President Xi Jinping at the Group of 20 nations summit in Argentina later this month, and has asked officials to draft potential terms.

Read more: Trump Said to Ask Cabinet to Draft Possible Trade Deal With Xi

The S&P 500 futures gained 0.6 percent as of 2:03 p.m. in Singapore, while the South Korean won strengthened 1.4 percent against the dollar. The Hang Seng Index headed for biggest gain since 2015 as it jumped 3.6 percent, while the offshore yuan reversed losses, advancing 0.2 percent.

Below are what analysts are saying about the possible trade deal and impact on the markets:

Masakatsu Fukaya, an emerging-market currency trader at Mizuho Bank Ltd. in Tokyo:

• The news on a draft for a possible trade deal is encouraging investors and traders to liquidate long-dollar positions against regional currencies
• The market seems to remain long USD against CNH and some other currencies amid weaker yuan outlook; so it’s possible that some of them will continue rising on USD-long liquidation as the expectations for a deal increase

Peter Dragicevich, a strategist at Suncorp Group Pty in Sydney:

• “Trump has had a hard line stance on the trade relationship with China. Many had expected the trade risks to continue, particularly given his underlying rhetoric. Indications that the two sides can come together, with the U.S. drafting a possible deal suggests there is a shift in the tone, and if realized would remove one of the downside risks to global growth outlook”
• This should be a positive for risk sentiment, supportive for Asian and U.S. equity markets and high-beta currencies linked to the global growth cycle such as the AUD, NZD, and CNH

Sim Moh Siong, FX strategist at Bank of Singapore Ltd.:

• Main casualty of the U.S.-China trade war risk has been emerging-market assets, especially those in Asia, so Asian currencies can benefit from a cooling down in tensions
• Asian currencies will see a “further relief rally,” which we also see in the Chinese currency; China-sensitive currencies such as Aussie and kiwi could also benefit
• Sim also sees broad-based dollar weakness as safe-haven demand unwinds
• Though nothing is firm right now, people are reacting to it given that Trump has tweeted about the phone call with Xi; whether more will come out of it remains to be seen

Christy Tan, head of markets strategy at National Australia Bank Ltd. in Singapore:

• The news “seems significant enough to eradicate USD bulls in a hurry”
• “If we look at performances this week, KRW and IDR appeared to have a head start and have outperformed the ADXY’s recovery. The others may start to play catch up, the likes of SGD and probably CNH too”
• The market reaction may be premature, and there’s still a risk that these gains could be unwound if a deal doesn’t eventuate

Kerry Craig, Melbourne-based global markets strategist at JPMorgan Asset Management:

• “The sharpness in the U-turn you’d have to look at that and wonder about the credibility of it. It’s been such a protracted period of constant rhetoric about the fact that the U.S. is in an unfavorable position on this”
• “Our position has been this would get worse before it gets better”
• “However, this could be more to do with stabilizing the markets ahead of the mid-term next week. Going into any election, politicians look to have a strong market and labor market as well”

To contact Bloomberg News staff for this story: Yumi Teso in Bangkok at yteso1@bloomberg.net;Michael G. Wilson in Sydney at mwilson176@bloomberg.net;Lilian Karunungan in Singapore at lkarunungan@bloomberg.net;Andrew Janes in Singapore at ajanes@bloomberg.net;Matthew Burgess in Sydney at mburgess46@bloomberg.net

To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Tan Hwee Ann

©2018 Bloomberg L.P.

With assistance from Editorial Board