Asia stocks rebound from 3-1/2-month lows as trade fears ease

TOKYO (Reuters): Asian stocks rebounded from a 3-1/2-month low on Wednesday as a slight softening in rhetoric from US President Donald Trump eased worries about the US-China tariff war, and on expectations that Beijing could unveil more economic stimulus.

In Europe, the pan-region Euro Stoxx 50 futures rose 0.24% in early trade, Germany’s DAX futures gained 0.25% and FTSE futures were up 0.3%.

Shares in Asia were led by strong gains in Chinese equities, which rebounded after two days of losses.

“Chinese stocks are mounting a rebound as they had been oversold in recent sessions. Sentiment is also better as President Trump seems to be desiring a compromise,” said Kota Hirayama, senior emerging markets economist at SMBC Nikko Securities in Tokyo.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.6%. The index had fallen to its lowest level since the end of January the previous day as the Sino-US trade conflict intensified. Beijing on Monday imposed a tariff hike on US goods following Washington’s decision last week to hike its levies on Chinese imports.

However, Trump on Tuesday said he had a “very good” dialogue with China and insisted talks between the world’s two largest economies had not collapsed. Wall Street shares were able to bounce overnight in wake of Trump’s comments.

The Shanghai Composite Index advanced 1.4%, shrugging off concerns about economic growth following weaker-than-expected Chinese data released on Wednesday.

China on Wednesday reported surprisingly weaker growth in retail sales and industrial output for April, adding pressure on Beijing to roll out more stimulus as the trade war with the United States escalates.

“The latest data shows that the Chinese economy still needs stimulus. Its stock markets could sustain its recovery if the government indicates it will continue to keep supporting the economy,” Hirayama at SMBC Nikko Securities said.

Australian stocks added 0.8%, South Korea’s KOSPI gained 0.6% and Japan’s Nikkei climbed 0.5%.

The Chinese yuan was a shade firmer at 6.9028 per dollar in offshore trade, having edged away from a five-month trough of 6.9200 set on Tuesday.

The dollar was steady at 109.650 yen, having pulled away from a three-month low of 109.020 plumbed on Monday when trade war worries boosted investor demand for the safe-haven Japanese currency.

The euro was unchanged at $1.1207. The common currency had dipped nearly 0.2% the previous day after Italy’s deputy prime minister said the country is ready to break European Union budget rules on debt levels if necessary to spur employment.

The dollar index against a basket of six major currencies was nearly flat at 97.524 after gaining 0.2% the previous day.

The Australian dollar brushed a 4-1/2-month low of $0.6922 after Wednesday’s data showed domestic wage growth stalling in the first quarter, adding to the case for an interest rate cut. The underwhelming Chinese economic indicators also weighed on the Aussie, which is seen as a proxy of China-related trades.

In commodities, US crude futures were down 0.76% at $61.31 per barrel after the American Petroleum Institute (API) reported a bigger-than-expected build in crude oil inventory.

US crude inventories rose by 8.6 million barrels in the week to 10 May to 477.8 million, compared with analysts’ expectations for a decrease of 800,000 barrels.

Brent crude lost 0.45% to $70.92 per barrel.

Brent and US crude futures had surged the previous day after top exporter Saudi Arabia said explosive-laden drones launched by a Yemeni-armed movement aligned to Iran had attacked facilities belonging to state oil company Aramco.