Shares rise as U.S., China trade negotiators talk, but bleak job data awaited

SHANGHAI/NEW YORK (Reuters) – Asian shares rose on Friday as a phone call between U.S. and Chinese officials raised hopes that trade tensions were easing,

turning the focus away from looming data expected to show the American economy lost the most jobs since the Great Depression.

European equities were set to maintain the good cheer, with pan-region Euro Stoxx 50 futures up 0.94% at 2,888 points, German DAX futures up 1.28% at 10,883 and France’s CAC 40 futures 0.81% higher at 4,529.5.

Asian markets, which had opened higher following gains on Wall Street overnight, got a further boost on news that U.S. and Chinese trade representatives had held a phone call and pledged to improve the atmosphere for the implementation of the two countries’ Phase 1 trade deal.

The discussion comes amid escalating tension between the countries, exacerbated by a war of words over U.S. criticism of China’s handling of the novel coronavirus outbreak.

The news lifted U.S. stock futures, pushing E-minis for the S&P 500 up 1.14% to 2,912.75.

MSCI’s broadest gauge of Asian share indexes outside Japan was 1.19% higher and Japan’s Nikkei gained 2.56%.

Australian shares added 0.5% on the day, and Chinese blue-chips were 1.06% higher.

While rising equity markets on Friday were accompanied by a slight uptick in U.S. Treasury yields, bond markets remained focused on the shaky global economic picture as coronavirus-related lockdowns continue to depress economic activity, despite signs of reopening in more countries.

“The equity market is disconnected and optimistic … We’ve got this bizarre scenario at the moment, where the bond market is really looking at the doomsday economic data and also hopes for potentially further support from the U.S. Federal Reserve,” said Ryan Felsman, senior economist at CommSec in Sydney.

Data from Japan on Friday showed household spending plunging 6% on year in March, and service-sector activity shrinking at a record pace in April.

Wall Street indexes climbed on Thursday, with the Nasdaq erasing losses for 2020, following a clutch of upbeat earnings. PayPal Holdings soared 14%.

After hitting a record low of 0.129% on Thursday, the yield on U.S. two-year Treasuries ticked up to 0.1369%, while the benchmark 10-year note edged back up to 0.6339% from the previous day’s close of 0.631%.

The yield on the 30-year bond was barely changed at 1.3219% from a close of 1.321% Thursday.

Bond markets were jolted this week, and the U.S. yield curve steepened after the U.S. Treasury Department said it would introduce a long-planned 20-year bond and expected to borrow $2.999 trillion in the second quarter.

But yields fell from three-week highs on Thursday as investors digested the prospect of a surge in debt supply and as some saw a dim outlook for the economy as it emerges from virus lockdowns.

Federal funds futures <0#FF:> had showed expectations of negative U.S. interest rates for the first time on Thursday, even as Federal Reserve officials have said such a development would be bad for the economy.

Looming over the markets is a report on Friday that is expected to show that the U.S. economy likely lost a staggering 22 million jobs in April and the unemployment rate jumped to 16% as people stayed home to thwart the spread of the novel coronavirus.

Markets had a foretaste on Thursday with weekly claims for unemployment benefits that added up to some 33.5 million people over the past few weeks, roughly one of every five American workers.

In currency trading, the dollar index fell 0.08% to 99.737 after hitting a two-week high on Thursday as some investors took profits ahead of the jobs report.

The euro rose 0.07% to buy $1.0840, and the dollar added 0.08% to buy 106.35 yen.

Hopes for improving demand lifted oil prices. Brent futures added 3.05% to $30.36 a barrel, while U.S. crude added 4.93% to $24.71.

After rising more than 2% on Thursday in anticipation of weak U.S. jobs data, spot gold was little changed at $1,717.80 an ounce.

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