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Asian Shares Rally as China’s Manufacturing Activity Expansion Offsets Worries Over Trade Deal

James Hyerczyk

The major Asia Pacific stock indexes are trading higher on Monday on the back of stronger than expected Chinese factory data as investors shrugged off another round of violence in Hong Kong and renewed doubts over a U.S.-China trade deal before the end of the year. The indexes were primarily led by a jump in shares in Japan.

At 06:01 GMT, Japan’s Nikkei 225 Index is trading 23533.20, up 239.29 or 1.03%. Hong Kong’s Hang Seng Index is at 26460.24, up 113.75 or +0.43% and South Korea’s KOSPI Index is at 2090.37, up 2.41 or +0.12%.

China’s Shanghai Index is trading 2875.31, up 3.15 or +0.11% and Australia’s S&P/ASX 200 closed at 6862.30, up 16.30 or +0.24%.

China’s Manufacturing Activity Jumps in November

A private survey on Monday showed China’s manufacturing activity expanded more than expected in November as the Caixin/Markit manufacturing Purchasing Managers’ Index (PMI) came in at 51.8.

Caixin and IHS Markit said in a joint press release that the pace of improvement was the strongest since December 2016.

The index was expected to have fallen to 51.4 in November from 51.7 in October, according to economists polled by Reuters.

PMI readings above 50 indicate expansion, while those below that level signal contraction.

Caixin and IHS Markit said the PMI data signaled a “further modest improvement” in the health of China’s manufacturing sector attributed to “solid increases” in output and new business. Employment in the sector also remained broadly stable, they added.

China’s official PMI was 50.2 in November, up from 49.3 in October to hit its highest level since March, China’s National Bureau of Statistics said on Saturday.

US-China Trade Developments

There’s uncertainty at the start of the new week, but this is being offset by China’s solid manufacturing reports.

Axios reported Sunday, citing a source close to U.S. President Donald Trump’s negotiating team, that the anticipated deal is now “stalled because of Hong Kong legislation” and a “Phase One” agreement between Washington and Beijing would only happen “year-end at the earliest.” The report also said Trump is expected to pause on planned tariffs in December.

“A week ago, U.S. sources close to the China talks indicated they were on the precipice of a “Phase One” deal. But that optimism now seems premature, if not misplaced,” Axios said.

Meanwhile, Chinese state media said Sunday that Beijing wants a rollback of tariffs in the phase one trade deal that the two economic powerhouses are aiming to reach.

“Sources with direct knowledge of the trade talks told the Global Times on Saturday that the U.S. must remove existing tariffs, not planned tariffs, as part of the deal,” according to the report.

Global Times, published by the official People’s Daily newspaper of China’s ruling Communist Party, also cited another unidentified source close to the talks as saying U.S. officials had been resisting such a demand because the tariffs were their only weapon in the trade war and giving up that weapon meant “surrender.”

Fresh Protests in Hong Kong

Police fired tear gas to disperse thousands of anti-government protesters in Hong Kong on Sunday, ending a rare lull in violence, as residents took to the streets chanting “revolution of our time” and “liberate Hong Kong”.

This article was originally posted on FX Empire