Asian shares edged up on Thursday as stimulus expectations and a rise in the yuan helped Chinese equities erase early losses, while markets awaited more news on U.S.-China trade talks amid hopes that an all-out trade war can be averted. MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3 percent, hovering at a near four-week high. China's blue-chip CSI 300 and Hong Kong's Hang Seng gained 0.3 percent and 0.1 percent, respectively.
Chinese shares recouped earlier losses as weak inflation data raised the prospect of further government stimulus. The yuan strengthened, breaching the key 6.8 per dollar level for the first time since August in both onshore and offshore trade, further boosting appetite for riskier assets. Australian shares added 0.3 percent, but Japan's Nikkei closed 1.3 percent lower. Wall Street's S&P 500 rose 0.41 percent on Wednesday, extending its gains from 20-month lows touched around Christmas to more than 10 percent.
Delegations from China and the United States ended three days of trade talks in Beijing on Wednesday in the first face-to-face negotiations since both sides agreed a 90-day truce in a trade war that has disrupted the flow of hundreds of billions of dollars of goods. China's commerce ministry said on Thursday the talks were extensive, and helped establish a foundation for the resolution of each others' concerns. However, there were few concrete details on the meetings in Beijing, which were not at a ministerial level, so were not expected to produce a deal to end the trade war. Risk assets extended a days-long rally overnight after minutes from the Fed's December meeting showed that many policymakers believed they could be patient about future monetary tightening, while a few did not support the central bank's rate increase last month.
WEAK CHINA DATA
Figures out of China on Thursday showed the country's consumer prices and factory-gate inflation both rose less than expected in December, with the latter rising at the slowest pace in over two years. Factory-gate inflation turned negative for the second straight month. "If this trend persists, it may turn negative on year-on-year terms this year and more radical stimulus measures, such as benchmark interest rate cuts, may become possible," said Betty Wang, Senior China Economist at ANZ Research. Besides the dovish slant from the Fed minutes, a clutch of officials said on Wednesday they will wait to deliver more interest rate hikes so the central bank can further assess growing risks to an otherwise solid U.S. economic outlook.
"The financial markets had been pushing the Federal Reserve to change their tune," said Chris Weston, Melbourne-based head of research at foreign exchange brokerage Pepperstone. "We've got that situation played out. The markets have had their day, they have pushed the Federal Reserve to work towards a sort of concerted patience stance...Now we've got back to an equilibrium point." The rally has gained traction since last Friday, when Federal Reserve Chairman Jerome Powell said he was aware of risks to the economy and would be patient and flexible in policy decisions this year. E-Mini futures for the S&P 500 were last down half a percent.
OIL EASES, DOLLAR PRESSURED
Oil also caught investors' attention after U.S. crude and Brent jumped overnight, helped by optimism over easing Sino-U.S. trade tensions, while OPEC-led crude output cuts also provided support. U.S. West Texas Intermediate crude futures on Wednesday gained almost 5.2 percent, while Brent crude futures rose more than 4.6 percent, extending a rally that has pushed futures up about 14 percent this year. Both benchmarks gave up some of their recent gains on Thursday.
U.S. crude was last trading 59 cents lower at $51.76 a barrel, down 1.15 percent. Brent lost 57 cents to $60.87, off 0.93 percent. Pepperstone's Weston said he viewed more gains in oil prices as a key driver for any further rise in risk appetite. If U.S. crude futures can break through the $55 level, "you're going to see real yields probably lower. That's really good for the cost of money and taking some further headwinds out of the U.S. dollar," he said.
U.S. Treasury yields last stood at 2.699 percent, down from 2.710 percent at the U.S. close on Wednesday. The dollar remained on the defensive after hitting its lowest level since mid-October amid the signs Fed policymakers are becoming more cautious about future rate hikes and as investors unwound safe-haven bets due to optimism over the trade talks. The greenback was down a tenth of a percent against the euro at $1.1556. The single currency gained 0.9 percent against the dollar during the previous session, its biggest one-day gain since late June. Against a basket of six major rivals, the dollar briefly dipped to 95.029, its lowest since Oct. 16, and was last down 0.1 percent.
The dollar lost 0.2 percent against the yen, a safe-haven currency that's often preferred by traders during times of market and economic stress. The Canadian dollar retreated in line with oil prices, and last traded down 0.2 percent at C$1.3232. It had risen to a five-week high during the previous session. The Bank of Canada held interest rates steady as expected on Wednesday but said more increases would be necessary even though low oil prices and a weak housing market will harm the economy in the short term. In commodity markets, spot gold was 0.2 percent higher at $1,296.40, edging towards a near seven-month peak of $1.298,60 scaled on Friday.
(With inputs from agencies.)