Shares rise on US-China trade talks but bleak job data awaited

Asian shares rose on Friday as a phone call between US and Chinese officials raised hopes that trade tensions were easing, turning the focus away from looming data expected to show the American economy lost the most jobs since the Great Depression.

European equities were set to maintain the good cheer, with pan-region Euro Stoxx 50 futures up 0.94 per cent at 2,888 points, German DAX futures up 1.28 per cent at 10,883 and France’s CAC 40 futures 0.81 per cent higher at 4,529.5.

Asian markets, which had opened higher following gains on Wall Street overnight, got a further boost on news that US and Chinese trade representatives had held a phone call and pledged to improve the atmosphere for the implementation of the two countries’ Phase 1 trade deal.

The discussion comes amid escalating tension between the countries, exacerbated by a war of words over US criticism of China’s handling of the novel coronavirus outbreak.

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The news lifted US stock futures, pushing E-minis for the S&P 500 up 1.14 per cent to 2,912.75.

MSCI’s broadest gauge of Asian share indexes outside Japan was 1.19 per cent higher and Japan’s Nikkei gained 2.56 per cent.

Australian shares added 0.5 per cent on the day, and Chinese blue-chips were 1.06 per cent higher.

While rising equity markets on Friday were accompanied by a slight uptick in US Treasury yields, bond markets remained focused on the shaky global economic picture as coronavirus-related lockdowns continue to depress economic activity, despite signs of reopening in more countries.

"The equity market is disconnected and optimistic ... We've got this bizarre scenario at the moment, where the bond market is really looking at the doomsday economic data and also hopes for potentially further support from the US Federal Reserve, " said Ryan Felsman, senior economist at CommSec in Sydney.

Data from Japan on Friday showed household spending plunging 6 per cent on year in March, and service-sector activity shrinking at a record pace in April.

Wall Street indexes climbed on Thursday, with the Nasdaq erasing losses for 2020, following a clutch of upbeat earnings. PayPal Holdings soared 14 per cent.

After hitting a record low of 0.129 per cent on Thursday, the yield on US two-year Treasuries ticked up to 0.1369 per cent, while the benchmark 10-year note edged back up to 0.6339 per cent from the previous day’s close of 0.631 per cent.

The yield on the 30-year bond was barely changed at 1.3219 per cent from a close of 1.321 per cent Thursday.

Bond markets were jolted this week, and the US yield curve steepened after the US Treasury Department said it would introduce a long-planned 20-year bond and expected to borrow $2.999 trillion in the second quarter.

But yields fell from three-week highs on Thursday as investors digested the prospect of a surge in debt supply and as some saw a dim outlook for the economy as it emerges from virus lockdowns.

Federal funds futures had showed expectations of negative US interest rates for the first time on Thursday, even as Federal Reserve officials have said such a development would be bad for the economy.

Looming over the markets is a report on Friday that is expected to show that the US economy likely lost a staggering 22 million jobs in April and the unemployment rate jumped to 16 per cent as people stayed home to thwart the spread of the novel coronavirus.

Markets had a foretaste on Thursday with weekly claims for unemployment benefits that added up to some 33.5 million people over the past few weeks, roughly one of every five American workers.

In currency trading, the dollar index fell 0.08 per cent to 99.737 after hitting a two-week high on Thursday as some investors took profits ahead of the jobs report.

The euro rose 0.07 per cent to buy $1.0840, and the dollar added 0.08 per cent to buy 106.35 yen. Hopes for improving demand lifted oil prices. Brent futures added 3.05 per cent to $30.36 a barrel, while US crude added 4.93 per cent to $24.71.

After rising more than 2 per cent on Thursday in anticipation of weak US jobs data, spot gold was little changed at $1,717.80 an ounce. – Reuters