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Asian stocks edged higher on Tuesday as positive signals from the latest round of trade discussions sparked investors’ hope of settling a conflict that has hit global economic growth and some corporate earnings.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.2 percent to $513.12.

The Shanghai Composite index added 0.6 percent to CN¥2,671.89, while South Korea’s KOSPI gained 0.4 percent to ₩2,190.47 and Australia’s S&P/ASX 200 advanced 0.3 percent to A$6,079.10.

A weaker yen drove Japan’s Nikkei up by 2.6 percent to ¥20,864.21 after a market holiday on Monday.

Market sentiment also found support on news of US lawmakers agreeing to a tentative deal on border security funding that could help prevent another partial government shutdown set to begin on Saturday.

However, congressional aides said it did not include the $5.7 billion that US President Donald Trump demanded for a border wall.

S&P 500 e-mini futures surged 0.6 percent to $2,724.62 on Tuesday.

New Round of Talks Spark Optimism

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US and Chinese officials were optimistic that the new round of trade negotiations would bring them closer to mitigate their months-long trade war.

Preparatory talks started on Monday ahead of Thursday and Friday’s higher principal-level discussions led by US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, who will meet Chinese Vice-Premier Liu He.

The world’s two largest economies are trying to establish an arrangement before a March 1 deadline, without which US tariffs on $200 billion worth of Chinese imports will more than double to 25 percent from 10 percent. This week’s talks are focused on intellectual property.

The trade row is already taking a toll on global expansion, knocking down business confidence and factory activity as well as prompting disruption in supply chains. The fear is that if the US-China tariff dispute drags on, it might severely damage corporate earnings worldwide.

Analysts now see US corporate earnings for the current quarter to fall by 0.2 percent from the prior year, which would be the first drop since the second quarter of 2016.

White House Advisor Kellyanne Conway stated on Monday that Trump wants to meet Chinese President Xi Jinping very soon as the US President wants a deal and he wants it to be fair to Americans, American workers, and American interests.

Trump has said his administration is seeking great deals on trade and he does not want China to have a hard time.

Uncertainty whether the leaders will meet to finalize a deal has further raised concerns that trade discussions are faltering as the self-imposed deadline in March draws near.  

Chief Global Strategist Mutsumi Kagawa said there will be no winner in a trade war, so at some point they will likely strike a deal.

Trump’s positive remarks on trade send the Chinese yuan higher on Tuesday, with the USD/CNY shedding 0.2 percent to 6.7755.

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