Asia stocks rise after Trump and Xi agree to tariff escalation pause

Asia Pacific markets mostly rose in Monday morning trade after U.S. President Donald Trump and Chinese President Xi Jinping agreed to hold off on slapping additional tariffs in an effort to resume trade talks.

In Japan, the Nikkei 225 jumped 1.62% in early trade, with shares on index heavyweight and robot maker Fanuc soaring 2.08%. The Topix index also gained 1.5%.

South Korea’s Kospi added 0.57% as shares of chipmaker SK Hynix advanced 1.73%. Australia’s S&P/ASX 200 rose 0.55%.

Asia-Pacific Market Indexes Chart

U.S. stock futures also pointed to sharp gains on Wall Street at Monday’s open.

The moves came after Trump and Xi emerged from a meeting on the sidelines of the Group of 20 summit in Osaka, Japan. Both sides confirmed in separate comments that they did not plan to levy any new tariffs against each other’s products at the present time.

Still, analysts said the decision is unlikely to spur business decisions. 

“Although a worst case outcome has been averted, the threat of tariffs remains and it is unlikely the truce gives much confidence to firms’ investment and hiring decisions,” Tapas Strickland, an economist at National Australia Bank, wrote in a note.

“It is likely that soft manufacturing conditions will persist until if and when a fuller agreement is fleshed out,” Strickland said.

On the subject of Huawei, Trump suggested that he will be reversing his government’s decision to ban American companies from selling products to the Chinese telecommunications behemoth. Previously, Washington had described the tech giant as a security risk to the U.S. and its allies.

Still, Trump said the issue of Huawei will be resolved only at the conclusion of the negotiations.

Following Trump’s comments, White House economic advisor Larry Kudlow told Fox News Sunday that the decision to let Huawei buy U.S. products is “not a general amnesty. “

Meanwhile, data released Sunday showed Chinese manufacturing activity shrinking more than expected in June.

The Purchasing Managers’ Index (PMI) stood at 49.4 in June, according to China’s National Bureau of Statistics on Sunday. That was unchanged from the previous month and below expectations of 49.5 by analysts in a Reuters poll. A PMI reading above 50 indicates expansion while those below that figure signal contraction.

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 96.306 after seeing levels below 96.0 last week. The offshore Chinese yuan saw strong gains against the dollar to 6.8245 after tracking above 6.87 for much of the previous trading week.

The Japanese yen, viewed as a safe-haven currency, weakened to 108.28 against the dollar after trading below 107.0 last week. The Australian dollar changed hands at $0.7021 following its rise from below $0.696 in the previous trading week.

Oil prices jumped Monday morning during Asian trading hours, with international benchmark Brent crude futures surging 1.9% to $65.97 per barrel. U.S. crude futures gained 2.04% to $59.66 per barrel.

— Reuters and CNBC’s Everett Rosenfeld contributed to this report.

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