Asian Shares Rise on Cautious Optimism, RBA Signals February Rate Cut

The major Asian Pacific indexes posted strong gains for a second session on Tuesday, led by a strong performance in China as investor confidence continued to be boosted by a recent “Phase One” trade deal between the United States and China. Shares in Australia bucked the bullish trend with a weak performance as investors reacted to dovish comments from the Reserve Bank of Australia (RBA).

On Tuesday, Japan’s Nikkei 225 Index settled at 24066.12, up 113.77 or +0.47%. Hong Kong’s Hang Seng Index closed at 27843.71, up 335.62 or +1.22% and South Korea’s KOSPI Index finished at 2195.68, up 27.53 or +1.27%.

China’s Shanghai Index settled at 3022.42, up 38.03 or +1.27% and Australia’s S&P/ASX 200 Index closed at 6847.30, down 2.40 or -0.04%.

Trade Deal Update:  Investors Remain Cautiously Optimistic

The markets remain underpinned by Friday’s announcement that the U.S. and China had reached a phase one trade deal. The gist of the deal shows that the U.S. will roll back some tariffs on Chinese products and China will increase its purchases of U.S. agricultural products.

Treasury Secretary Steven Mnuchin added Saturday that the “deal will be signed in early January and then we will start on phase two.” However, investors remain skeptical due to the lack of details.

Hannah Anderson, global market strategist at J.P. Morgan Asset Management told CNBC’s “Squawk Box” on Tuesday, “I think markets are justifiably excited of any progress on the U.S.-China trade negotiation. However, there does remain quite a bit of work…left to do and so I think markets are going to have a belated awakening to the fact that they can’t exactly dismiss this risk throughout 2020.”

Reserve Bank of Australia Lays Groundwork for February Interest Rate Cut

Reserve Bank board members acknowledged the nation’s spending freeze could in part be down to a routine lag in monetary policy but signaled the central bank is prepared to cut to a fresh low of 0.5 percent when it reconvenes in February.

Minutes from the RBA’s monthly meeting on December 3 showed board members noted monetary policy had “long and variable lags” and that indebted consumers may take some time before increasing their spending in response to three 0.25 percent rate cuts over the past six months.

“As part of their deliberations, members noted that the board had the ability to provide further stimulus to the economy, if required,” they said. “Members also agreed that it was reasonable to expect that an extended period of low interest rates would be required in Australia to reach full employment and achieve the inflation target.”