China has announced exemptions from the 25% extra tariffs put in place last year in some product categories such as pharmaceuticals and lubricant oil. This softer stance is being viewed a move by China to restart the trade negotiation on good terms in October. This has lifted sentiment in Asia combined with a technical rebound generally in equities.
Risk-on with Nikkei futures leading the gains
Leading the rally in equities is once again Japanese equities with Nikkei futures up 1.1% erasing the losses from the intermediate peak in July. As we said repeatedly over the last week, we prefer German and Japanese equities as high beta play on risk sentiment and general optimism. As we highlighted in yesterday’s equity update economic surprises have become less and less negative with Citi’s Economic Surprise Index G10 turning almost positive. If we are right that central banks will deliver enough monetary stimulus, with ECB starting tomorrow, and macro data begin to surprise positively then the rally could continue.