Asian stocks rose on Monday, supported by signs of easing trade tensions between the United States and China and expectations that pro-stimulus Sanae Takaichi will win the presidency of Japan's next prime minister.
The MSCI Asia Pacific Index rose 1.6% after two consecutive weekly losses, while the Nikkei 225 index headed for a new record high as leaders of the ruling Liberal Democratic Party and the opposition Ishin Party reached an agreement to form a government coalition in Japan. The yen weakened against the dollar.
Optimism about US-China talks
Market sentiment improved after US President Donald Trump sought to defuse trade tensions with China, following market turmoil on Friday over credit concerns at US banks.
A new round of US-China trade talks is scheduled for this week, with the participation of Treasury Secretary Scott Besant and Chinese Vice Premier He Lifeng, in an effort to de-escalate the new escalating measures.
Hong Kong stocks extended gains even as China's economic growth slowed to its weakest pace in a year, with focus shifting to a key policy meeting in Beijing.
Kyle Rodda, senior market analyst at Capital.com in Melbourne, wrote that markets are currently pricing in a calming scenario, but tensions will persist until there is an explicit announcement of a reversal in positions.
Mixed global indicators
In other markets, the 10-year US Treasury yield rose by about one basis point to 4.02%, while gold rose slightly and the dollar index stabilized, while oil prices declined.
In an interview with Fox News on Sunday, Trump said that 100% tariffs on Chinese goods are unsustainable, although they may be implemented, adding that the United States will be fine with China.
For his part, Besent said he spoke with He Lifeng via virtual call on Friday evening, describing the discussions as frank and detailed, and confirming his plans for a face-to-face meeting next week.
His remarks came after Trump expressed optimism about the possibility of reaching an agreement to ease the crisis, which saw him threaten to sharply increase tariffs. This is a sign of Washington's efforts to contain fears of a full-blown trade war with Beijing that could severely impact the global economy.
There is a general belief that US-China trade news will remain biased toward a positive outcome, Chris Weston, head of research at Pepperstone Group, wrote in a note to clients.
Busy week for investors
From the postponed September US inflation report, to a high-level political meeting in China, and a busy week of earnings announcements from companies including Netflix and Tesla, investors are anticipating an eventful week.
The US Consumer Price Index for September, originally scheduled for October 15, will be released on Friday.
In China, political leaders in Beijing are beginning a four-day meeting known as the Fourth Plenary Session, with traders anticipating any new measures to support the strongest rally in Chinese stocks in eight years and strengthen the yuan.
Although the detailed plan will not be announced until March of next year, investors will be watching the meeting's final statement for any political signals ahead of a potential meeting between Chinese President Xi Jinping and Trump.
French bond futures fall
In geopolitical news, Israel launched strikes against Hamas in Gaza and halted all aid shipments on Sunday after holding the movement responsible for an attack that killed two soldiers.
In Europe, French bond futures opened lower after S&P Global Ratings downgraded France's credit rating to A+ from AA-, citing high budget uncertainty.
France thus loses its double AA rating from two of the three major rating agencies within just one month, which could force some funds with strict investment criteria to sell French bonds.
