Liu He (C) hailed phone talks with US Trade Representative Robert Lighthizer (L) and Treasury Secretary Steven Mnuchin (R) (CHIP SOMODEVILLA)

Hong Kong (AFP) – Asian markets rallied Monday following a forecast-busting US jobs report, and on growing optimism that China and the United States will finally sign off on a mini trade pact.

Investors took their lead from another record-breaking close on Wall Street, which came at the end of a strong week for equities thanks to strong earnings and another Federal Reserve interest rate cut.

The Labor Department said the US created 128,000 net new jobs in October, surpassing the 80,000 expected, while the figure for the previous two months was also revised upwards.

Friday’s reading came days after data showed the world’s top economy slowed slightly in July-September but not as much as projected, suggesting it is stabilising.

The figures helped the S&P 500 to a new all-time high, while the Dow moved to within a whisker of its own record.

Asian investors took up the mantle on Monday, with Hong Kong and Seoul each piling on more than one percent, while Shanghai jumped 0.5 percent.

Sydney and Singapore were both 0.3 percent up, Taipei rallied 0.8 percent and Wellington climbed 0.5 percent. There were also healthy gains in Manila and Jakarta. Tokyo was closed for a public holiday.

The upbeat mood was enhanced by comments from Chinese Vice Premier Liu He that indicated trade talks with Washington were on track.

Liu said he had spoken on Friday to US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, with both sides saying the talks were “constructive”.

– Note of caution –

“Everyone is kind of upbeat around the prospect of at least a partial China-US trade deal,” Peter Dragicevich, a strategist at Suncorp Corporate Services, told Bloomberg TV.

“It’s going to keep equities pretty supported.”

Progress on the discussions has provided support to equities for the past few weeks, with speculation that Donald Trump and Xi Jinping will meet this month to sign off on the mini pact.

While the agreement would only be the first part of a wider deal, it would be a major step after more than a year of a trade war that has dealt a blow to the world economy.

However, National Australia Bank’s Rodrigo Catril warned there were still important issues to address.

“Importantly, as much as the US-China trade updates continue to point to a phase one deal looking like a certainty, the contentious issues on whether the US will cancel the planned December tariffs and remove some of the current tariffs in line with China’s demands remains an unknown and if the issue is not resolved then a deal could easily collapse,” he said in a note.

The good news on Friday helped push oil prices up more than three percent, though profit-taking saw both main contracts fall in Asian business.

But OANDA senior market analyst sounded a note of caution, warning: “Friday’s mega-rally (for oil) was built on a combination of not-as-bad-as-feared data and optimism on a trade deal that really, only keeps the lights on. It does not increase the brightness of the world economy.”

– Key figures around 0230 GMT – 

Hong Kong – Hang Seng: UP 1.2 percent at 27,411.61

Shanghai – Composite: UP 0.5 percent at 2,973.33

Tokyo – Nikkei 225: Closed for a public holiday

Pound/dollar: DOWN at $1.2932 from $1.2937 at 2040 GMT on Friday

Euro/pound: UP at 86.35 pence from 86.27 pence 

Euro/dollar: UP at $1.1167 from $1.1162

Dollar/yen: UP at 108.22 yen from 108.20 yen

West Texas Intermediate: DOWN 27 cents at $55.93 per barrel

Brent North Sea crude: DOWN 29 cent at $61.40 per barrel

New York – Dow: UP 1.1 percent at 27,347.36 (close)

London – FTSE 100: UP 0.8 percent at 7,302.42 (close)

Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.