Asian share markets jumped on Friday as a last-gasp Sino-US trade deal and a likely major election win by Britain’s Conservative Party looked to have cleared a couple of dark clouds from the global horizon.
The double dose of relief slugged safe-haven sovereign bonds and the Japanese yen, even leading investors to scale back the chance of more interest rates cuts around the world.
“Global investors have been given two of the biggest gifts on their Christmas list and should be appreciative for a while at least,” said Sean Callow, a senior forex analyst at Westpac.
“Global equity indices such as MSCI World should set more record highs and sterling could push above $1.36.”
The pound hit its highest since mid-2018 as UK exit polls seemed to rule out a shock win by the left-wing Labour opposition, and could help clarify the outlook for Brexit.
Polls suggested Prime Minster Boris Johnson could gain a commanding 368 seats in Britain’s Parliament, settling another long-standing uncertainty.
The pound was last up 2.3 percent at $1.3464 and reached levels on the euro not visited since mid-2016.
A wave of trade euphoria had already lifted Wall Street to record highs. Reuters reported the United States has agreed to reduce some tariffs on Chinese goods and delay a tranche of tariffs as part of a phase one deal.
China also has agreed to make $50 billion in agricultural purchases in 2020 as part of the deal, that person and another US source familiar with the talks said.
“If the US cuts the current tariffs to some extent as reported, that is not something markets have priced in, so we could see a further leg up in the stock market,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
“The Conservatives appear to be on course for a big win. We are now finally seeing a clear direction on Brexit after three years of deadlock.”
Less need for more cuts?
In Asia, Japan's Nikkei climbed 2.1 percent to a 14-month high, while South Korean stocks firmed 1.2 percent. E-Mini futures for the S&P 500 rose 0.4 percent to another peak.
MSCI’s broadest index of Asia-Pacific shares outside Japan put on 0.5 percent.
Wall Street had celebrated the trade news with record highs. The Dow ended Thursday up 0.79 percent, while the S&P 500 gained 0.86 percent and the Nasdaq 0.73 percent.
That was bad news for bonds and yields on US 10-year Treasuries shot up to 1.95 percent, a rise of 16 basis points in just two sessions.
Interest rate futures slipped as investors priced in less chance of a rate cut from the Federal Reserve next year — a shift seen across a range of developed nations.
Other safe harbours also took a beating, with the yen sliding across the board. The dollar firmed further to 109.42 yen having risen 0.7 percent overnight.
The dollar fared less well elsewhere as the pound and the euro both benefited from the UK exit polls. The euro added 0.5 percent to $1.1189, while the dollar dipped 0.35 percent on a basket of currencies to 96.742.
The dollar also lost out to the Chinese yuan to hit an 18-week low as any truce would be seen as a boon for the export-heavy economy. The dollar was last at 6.9487 yuan having shed a steep 1.2 percent overnight.
The shift from safe havens saw spot gold ease to $1,465.04 per ounce.
Oil prices rallied on hopes a trade deal would support global growth and thus demand.
US crude added 36 cents to $59.54 a barrel, while Brent crude had yet to open.