Shares rise in Asia as US-Canada trade talks revived
By Wayne Cole
SYDNEY (Reuters) -Shares indices rose in Asia on Monday as the revival of trade talks between the United States and Canada helped risk sentiment, while the dollar dipped on concerns U.S. jobs data could show enough weakness to justify larger rate cuts.
Canada on Sunday said it had rescinded its digital services tax in a bid to advance trade negotiations, bowing to pressure from President Donald Trump.
The talks are aimed at getting a deal done by July 21, extending Trump's original July 9 deadline for his "reciprocal" tariffs. Officials have suggested most deals could now be done by the September 1 Labor Day holiday.
Investors were also keeping a wary eye on the progress of a huge U.S. tax-cutting and spending bill slowly making its way through the Senate, with signs it may not make it by Trump's preferred July 4 deadline.
The Congressional Budget Office estimated the bill would add $3.3 trillion to the nation's debt over a decade, testing foreign appetite for U.S. Treasuries.
There was no doubting the demand for the U.S. tech sector and megacap growth stocks including Nvidia, Alphabet and Amazon. Nasdaq futures rose another 0.4%, while S&P 500 e-minis added 0.3%.
EUROSTOXX 50 futures rose 0.3%, while FTSE futures were flat and DAX futures gained 0.4%.
The bullish sentiment spilled over into Japan's Nikkei which rose 1.0%, while South Korean stocks gained 0.7%. MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.2%.
Chinese blue chips edged up 0.1%, as surveys showed manufacturing improved slightly in June while service activity picked up.
A holiday on Friday means U.S. payrolls data will come a day early, with analysts forecasting a rise of 110,000 in June with the jobless rate ticking up to the highest in almost a year at 4.3%.
The resilience of the labour market is a major reason the majority of Federal Reserve members say they can afford to wait on cutting rates until they can gauge the true impact of tariffs on inflation, so a weak report would stoke speculation of a rate cut in July rather than September.
"While initial jobless claims retreated somewhat from their recent high, continuing claims jumped higher yet again," noted Michael Feroli, head of U.S. economics at JPMorgan. "Consumers' assessment of labor market conditions also deteriorated in the latest confidence report."
"Both of these developments suggest that the unemployment rate in June should tick up to 4.3%, with a significant risk of reaching 4.4%."
The latter outcome would likely see futures push up the chance of a July easing from the current 18% and price in more than the present 63 basis points of cuts for this year.
DOLLAR DOLDRUMS
Fed Chair Jerome Powell will have an opportunity to repeat his cautious outlook when he joins several other central bank chiefs at the European Central Bank forum in Sintra on Tuesday.
The prospect of an eventual policy easing has helped Treasuries weather worries about the U.S. budget deficit and the huge amount of borrowing it entails.
Yields on 10-year Treasuries were steady at 3.28%, having fallen 9 basis points last week.
The dollar has not fared so well, in part due to concerns tariffs and chaotic policies from the White House will drag on economic growth and erode the country's claim to exceptionalism.
The euro was near its highest since September 2021 at $1.1735, having climbed 1.7% last week, while sterling stood near a similar peak at $1.3733.
The dollar was down 0.5% on the yen at 143.86, and slipped 0.1% on the Canadian dollar to 1.3665 following the trade news. The dollar index eased to 97.075, a whisker above three-year lows.
James Reilly, a senior markets economist at Capital Economics, noted the dollar had fallen by more at this stage in the year than in any previous year since the U.S. moved to a free-floating exchange rate in 1973.
"At this point, further weakness could become self-reinforcing as underhedged European/Asian portfolios chase the move," he added.
"So, we suspect that this could be a pivotal period for the greenback – either it turns around here or there is another 5% or so fall around the corner."
In commodity markets, the general revival in risk sentiment has undermined gold, which hovered at $3,284 an ounce and further away from April's record top of $3,500. [GOL/]
Oil prices continued to struggle on concerns about plans for increased output from OPEC+, which contributed to a 12% slide last week. [O/R]
Brent dropped a further 14 cents to $67.63 a barrel, while U.S. crude eased 28 cents to $65.24 per barrel.
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