Surge in Asian Shares Amidst Optimism Following Trump-Xi Conversation

Asian equity markets surged amidst heightened optimism following a conversation between former U.S. President Donald Trump and Chinese President Xi Jinping, fueling hopes for reduced tensions between the two nations.

Equities Advance Globally

Regional equity markets experienced gains, with leading Chinese companies listed in Hong Kong witnessing a rise of up to 2.6%. European futures moved slightly higher, while U.S. contracts faced marginal declines due to the holiday closure of Wall Street on Monday. The U.S. dollar weakened, continuing its downward trend after a six-week rally.

Risk Appetite Bolstered by Trump-Xi Discussion

The surge in risk appetite stemmed from the discussion between Trump and Xi, which covered topics such as trade, TikTok, and fentanyl. The conversation has set the tone for potential improvements in relations during the initial period of the Trump administration. Additionally, TikTok resumed services in the U.S. on Sunday after Trump paused a law that required its Chinese parent company to find a buyer within three months.

Policy Implementation Focus

The continuation of this positive momentum hinges on the pace at which Trump implements his policy initiatives, including tax cuts, tariffs, and immigration restrictions. The potential inflationary impact of these policies could maintain the U.S. dollar's strength and elevate Treasury yields. Trump's stance on other issues, such as technological rivalry with China and climate change, will also impact investment decisions in sectors ranging from semiconductors to electric vehicles and shipbuilding.

Market Outlook

According to Heng Koon How, head of markets strategy at United Overseas Bank, the phone call between Trump and Xi has set a constructive tone for U.S.-China relations. The president-elect is planning a series of executive orders on immigration, energy, federal workers, and regulatory reform in the days following his inauguration on January 20.

Analysts predict that Trump's combination of pro-growth and protectionist policies may lead to a less accommodative Federal Reserve, a stronger U.S. dollar, and weaker bond yields. Nomura Holdings Inc. and T. Rowe Price project a rise in 10-year Treasury yields to 6% this year, while some bond traders anticipate the U.S. central bank's next move to be a rate hike.

Other Key Developments

* Chinese Vice President Han Zheng met with Elon Musk and other U.S. business figures, underscoring China's efforts to maintain positive ties with the U.S.
* Chinese banks kept their key loan prime rates unchanged, in line with Bloomberg Intelligence forecasts.
* The World Economic Forum's annual meeting commenced on Monday, with high-profile figures such as Larry Fink, Ray Dalio, and Marc Benioff expected to attend.
* Trump is scheduled to address the forum virtually three days after his inauguration.
* The Bank of Japan's policy decision on Friday is anticipated to result in a rate hike, according to a Bloomberg survey.
* A digital token launched by Trump has drawn controversy in the cryptocurrency market, stoking concerns about conflicts of interest.
* Oil prices remained stable ahead of Trump's inauguration, amid expectations of uncertainty and volatility during his second term.