Asia stocks cheer Sino-US trade talk, still see red for the year

[SYDNEY] Asian stocks crept higher on Monday as hints of progress on the Sino-US trade standoff provided a rare glint of optimism in what has been a disappointing year for equities in the region.

US president Donald Trump said he held a "very good call" with China's president Xi Jinping on Saturday to discuss trade and claimed "big progress" was being made.

Chinese state media were more reserved, saying Mr Xi hoped the negotiating teams could meet each other half way and reach an agreement that was mutually beneficial.

The Wall Street Journal reported negotiators were starting to work out a deal that could boost US exports and loosen regulations that stifle US firms in China.

MSCI's broadest index of Asia-Pacific shares outside Japan added 0.2 per cent in early trade, but was still down 16 per cent for the year. Japan's Nikkei was closed for a holiday having ended the year with a loss of 12 per cent.

Across the region, the worst performer of the year was the index of Chinese blue chips which lost a quarter of its value. The only major market in the black for the year was India, where the BSE was ahead by almost 6 per cent.

The story was much the same across the globe, with the vast majority of the major stock indices in the red.

The S&P 500 is off almost 10 per cent for December, its worst month since February 2009. That left it down 15 per cent for the quarter and 7 per cent for the year.

"Simply looking at the markets would suggest that the global economy is headed into recession," said Robert Michele, chief investment officer and head of fixed income at JP Morgan Asset Management.

"However, while we agree the global economy is in a growth slowdown, we don't see an impending recession," he added, in part because the Federal Reserve could provide a policy cushion.

"Already, commentary out of the Fed suggests that it is nearing the end of a three-year journey to normalise policy," argued Mr Michele.

NO MORE HIKES

Indeed, Fed fund futures have largely priced out any hike for next year and now imply a quarter point cut by mid-2020.

The Treasury market clearly thinks the Fed is done on hikes, with yields on two-year paper having fallen to just 2.52 per cent from a peak of 2.977 per cent in November.

The US$15.5 trillion market is heading to its biggest monthly rally in two and a half years, according to an index compiled by Bloomberg and Barclays.

The precipitous drop in yields has undermined the US dollar in recent weeks. Against a basket of currencies, it was on track to end December with a loss of 0.9 per cent but was still up on the year as a whole.

It has also had a tough month against the yen with a loss of 2.8 per cent, and was last trading at 110.31. Then again, 2018 was a pretty stable year for the pair given they spent all of it in a narrow trading range of 104.55 to 114.54.

The euro was ending the month on a firmer note at $1.1439 , but still nursed losses of almost 5 per cent for the year to date.

That was trivial compared with the hit oil prices have taken in the last couple of months, with Brent down almost 40 per cent since its peak in October.

Early Monday, the crude benchmark was up 14 cents at US$53.35 a barrel but down 20 per cent for the year. US crude futures nudged up 7 cents to US$45.40.

Gold was ending the year on a high note after rallying almost 5 per cent in the past month to stand at US$1,279.26 an ounce.

REUTERS