Japan Nikkei surges to seven-week high on US-China trade truce

Headline indices of the Japan share market advanced to a seven-week high on Monday, 03 December 2018, on trade optimism after U.S. President Donald Trump and his Chinese counterpart Xi Jinping have agreed to a 90-day truce in the escalating trade war between the two countries. Apart from trade, investors have taken heart from comments by U.S. Federal Reserve Chair Jerome Powell as hinting at a slower pace of rate hikes. Total 32 of TSE33 issues inclined, with shares in Marine Transportation, Oil & Coal Products, Mining, Transportation Equipment, Nonferrous Metals, and Iron & Steel issues being notable gainers. In late afternoon trades, the 225-issue Nikkei index inclined y 241.74 points, or 1.1%, at 22,592.80, the highest level since Oct. 18. The broader Topix index of all First Section issues on the Tokyo Stock Exchange was up 22.13 points, or 1.33%, to 1,689.58.

Tokyo market continued its bull run on Monday trade after the United States agreed to suspend imposing tariffs on China for three months at the G20 Summit, a relief for the global economic outlook and a tonic for emerging markets.

In a much-anticipated meeting between Donald Trump and Xi Jinping at the weekend, the heads of the world's two biggest economies hammered out a deal that will see them hold off on their tit-for-tat tariffs row, which has roiled global equities for most of the year. The leaders called a cease-fire in their trade dispute, to last for at least 90 days, to allow time to smooth out disagreements over Chinese technology policies that the U.S. and other trading partners consider predatory. Trump will hold off on plans to raise tariffs on $200 billion in Chinese goods, which were supposed to kick in on Jan. 1. In return, Xi agreed to buy a "very substantial amount" of agricultural, energy and industrial products from the U.S. to reduce its large trade deficit with China.

Cyclical stocks such as tech, autos and machinery which have large exposure to the Chinese market, outperformed. Hitachi and TDK Corp surged 5%, and Toyota Motor Corp advanced 3.5%. Honda Motor added 2%, Fanuc Corp 2.5% and Yaskawa Electric 3.1%.

On the economic front, Ministry of Finance (MOF) data out on Monday showed capital expenditure grew 4.5% in July-September from the same period last year, led by chemicals, production machinery, information and communications. It slowed from a 12.8% gain in the previous quarter. Excluding software, capital expenditure fell 4.0% in July-September from the previous quarter on a seasonally-adjusted basis, down for the first time in five quarters.

Japan final Markit/Nikkei Japan Manufacturing Purchasing Managers' Index (PMI) was 52.2 on a seasonally adjusted basis, up from a flash reading of 51.8 but below October's final 52.9. The index remained above the 50 threshold that separates contraction from expansion for the 27th consecutive month. For November, the PMI's final index for new orders was 50.9, compared with the preliminary reading of 49.6 and a final 52.6 in the previous month. The index for export orders was a final 50.8 for last month, unchanged from the flash reading and below a final 51.1 in October.

CURRENCY NEWS: Japanese yen changed hands in the upper -113 yen zone against greenback on Monday, predominantly in line with its levels in New York overnight. The dollar was quoted at 113.77-78 yen compared with 113.36-46 yen in New York and 113.46-48 yen on Friday in Tokyo. The euro, meanwhile, fetched 129.02-09 yen against 128.41-51 yen in New York and 129.12-16 yen in Friday trade in Tokyo.

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