Asia: Markets build on trade talks rally, Turkish lira holds up

[HONG KONG] Asian markets extended their gains Friday on hopes for China-US trade talks, while Turkey's lira held up after a shock hike in the country's interest rate and a dip in US inflation.

After a tumultuous start to the month, investors finally had something to smile about Thursday after Treasury Secretary Steven Mnuchin invited Chinese officials for fresh talks to avert an all-out trade war.

The news provided some much-needed support, which was improved on later in the day with data showing US consumer price inflation slid in August, easing pressure on the Federal Reserve to tighten borrowing costs.

While the central bank is expected to lift rates next month, the figures lower the chances of another such move before January and provided a boost to equities on Wall Street.

That, combined with a pick-up in demand for stocks and currencies, sent the dollar southwards against most higher-yielding currencies but up against the safe-haven yen.

It also gave some breathing space to emerging markets, which have been battered in recent weeks by fears of contagion from crises in Turkey, Argentina and South Africa as a stronger dollar makes it harder for them to repay debts.

"Hope springs eternal for emerging markets anytime the US dollar weakens and (Thursday) was no exception," said Stephen Innes, head of Asia-Pacific trading at OANDA.

"As indeed the stars aligned for emerging markets assets after an astonishing interest rate hike from the Central Bank of Turkey... and an exceedingly soft US (inflation) data."

REMAIN CAUTIOUS

The CBT ramped up interest rates to 24 per cent from 17.5 per cent Thursday as it struggles to fight off inflation and boost the lira, which is down around 40 per cent this year.

The surprise move - an indication the CBT wanted to show its independence from strongman President Recep Tayyip Erdogan - sent the lira surging to 6.01 to the dollar from 6.4. While the unit later eased slightly it managed to hold on to most of the rally in Asian trade.

The positive sentiment from Thursday continued heading into the weekend, with Tokyo going into the break one percent higher and Sydney 0.5 per cent up.

Hong Kong rose 0.7 per cent, adding to the previous day's 2.5 per cent rise, while Seoul surged 1.3 per cent and Singapore gained 0.6 per cent.

Shanghai dipped 0.1 per cent while Manila fell 0.7 per cent with investors fretting as Super Typhoon Mangkhut barrels towards the northern Philippines.

But while traders are upbeat, Hannah Anderson, global market strategist at JP Morgan Asset Management, warned against being too hopeful, with the US still considering imposing tariffs on US$200 billion of Chinese imports.

"Markets need to separate trade rhetoric and trade actions," she said.

"While heated rhetoric may contribute to the shifting investor expectations we have seen this week, there has been no fundamental change in the state of the US-China trade dispute," Anderson added.

"The US is pressing ahead with tariffs... and China's qualitative restrictions on US companies operating in China are starting to show up as a drag in business surveys.

"China and the US both need to clarify what their goals are in this dispute for us to be hopeful about a near-term resolution."

AFP