Upbeat News Over Trade Talks Underpinning China’s Equity Markets

Asian stock markets are trading mixed on Friday following another session of steep declines on Wall Street. Investors are still showing a reaction to the quarterly warning from Apple that was a major drag on all the major U.S. indexes on Thursday. The quarterly guidance from Apple raised a red flag about the strength of the global economy.

At 0509 GMT, Japan’s Nikkei 225 Index is trading 19443.79, down 570.98 or -2.85%. Australia’s S&P/ASX 200 is at 5610.60, down 22.80 or -0.40%.

China’s Shanghai Index is trading 2509.02, up 44.66 or +1.81%. The South Korean KOSPI Index is at 2005.45, up 11.75 or +0.59% and Hong Kong’s Hang Seng Index is at 25390.46, up 326.10 or +1.30%.

Sellers returned to the market in Japan after a two-day bank holiday, driving almost all sectors lower. The positive moves in the Chinese mainland markets were in reaction to comments from the country’s commerce ministry. He announced that vice-ministerial level trade talks with the U.S. would be held on January 7-8.

Investors in China were also reacting to the release of positive data from China’s services sector. The Caixin/Markit services purchasing managers’ index jumped to a six-month high of 53.9 in December, rising from 53.8 in the previous month. The figure was significantly higher than the 50.0 mark which separates expansion from contraction. This news offset slightly the previously reported decline in its manufacturing sector for December.

This week’s two-sided trade is likely being fueled by below average liquidity and trading volumes.

Trade Talks May Bring Optimism to Stock Market

The United States and China will hold vice-ministerial level trade talks in Beijing on January 7-8, as both economic powerhouses seek an ending to the dispute that is inflicting increasing pain on both economies while instilling fear in the global economy.

A working team led by Deputy U.S. Trade Representative Jeffrey Gerrish will come to China to have “positive and constructive discussions” with Chinese counterparts, China’s commerce ministry said in a statement on its website.

The ministry said the two sides “confirmed” the dates in a phone call on Friday morning, but did not provide other details.

Earlier this week, President Trump said talks toward a deal are progressing well, but it is unclear if Beijing will yield to key U.S. demands over trade imbalances, market access, and alleged Chinese abuses of intellectual property.

On December 1, President Trump and Chinese President Xi Jinping agreed to hold off on additional tariffs for 90 days while they attempt to negotiate a deal. If a deal isn’t struck by March 1, Washington could proceed with a sharp hike in U.S. tariffs on Chinese goods originally set for January 1 and Beijing could retaliate.

There Will Be Opportunity in Asia

Although the higher-level trade talks are a positive development, they may be just enough to underpin the markets rather than send them to fresh near-term highs. Investors are not likely to jump the gun on any trade deal, however, which may lead to a sideways-to-lower trade. The general consensus is that if there is a trade deal with China by March 1, then Asian stocks will be the place to be in terms of equities.