Shares firm on hopes for trade deals, dollar tries to hold post-Fed bounce

By Stella Qiu

SYDNEY, May 8(Reuters) - Shares in Asia firmed on Thursday after US President Donald Trump flagged a first trade deal in his global tariff war, while the dollar tried to hold overnight gains as markets pushed out the chance of near-term rate cuts.

S&P 500 futures erased earlier losses to be up 0.5% while Nasdaq futures rose 0.7%. The pan-European STOXX index climbed 0.7% and FTSE futures gained 0.5%.

Trump said late on Wednesday that he would announce details about a major trade deal with an unspecified country at a press conference later in the day. The New York Times reported that the deal was with Britain.

The president's comments came as investors anxiously await planned trade talks between Washington and Beijing on Saturday, which could mark the first step in resolving a potentially damaging trade war between the world's top two economies.

Markets are also keeping their eyes peeled on the Bank of England's policy meeting later in the day where expectations are for a quarter-point rate cut. Additionally, central banks in Sweden and Norway are due to deliver their latest policy decisions, although no moves are expected.

Overnight, in a widely expected decision, the Federal Reserve left the policy rate in the 4.25%-4.5% range, but said the risks of higher inflation and unemployment had risen. Chair Jerome Powell said it isn't clear if the economy will continue its steady pace of growth, or wilt under mounting uncertainty and a possible coming spike in inflation.

Markets scaled back the chance of a June rate cut to just 20%, from 30% a day earlier, while a move in July is now priced at 70%, compared with a near-certainty just a week ago.

"This suggests little inclination to move until they are confident of the direction the data is heading, meaning rate cuts could be delayed, but risk being sharper when they come," said James Knightley, chief international economist at ING.

Such a scenario likely weighed on the longer-dated Treasury yields, with the benchmark ten-year yields down 7 basis points overnight at 4.275%. Two-year yields held steady at 3.785%.

The hawkish Fed also gave the dollar a much needed bounce, although some selling pressure was again evident in morning trade in Asia. The dollar index slipped 0.1% to 99.803, having rebounded 0.3% overnight against its major peers.

On Thursday, MSCI's broadest index of Asia-Pacific shares outside Japan was flat while Japan's Nikkei edged up 0.2%.

Both Chinese blue chips and Hong Kong's Hang Seng gained 0.4%, building on the gains from Wednesday when Beijing announced a rate cut and more cash for the banking system.

Overnight on Wall Street, stocks rose on reports that the Trump administration was planning to rescind and modify a Biden-era rule that curbed the export of sophisticated artificial-intelligence chips. Nvidia shares jumped 3%.

TRADE TALKS

On Wednesday, Trump suggested that Beijing initiated upcoming senior-level trade talks and said he was not willing to cut US tariffs on Chinese goods to get Beijing to the negotiating table.

China has said earlier that it was the US side that had signalled a desire to hold talks.

While Trump's comments underlined the recent mixed signals from Washington on de-escalating the Sino-U.S. trade war, analysts say the Geneva meeting could help ease tensions.

"The rest of the week will likely see investors cautiously, if not slightly auspiciously, awaiting trade talks between the US and China," said Kyle Rodda, a senior analyst at Capital.com.

In commodities markets, oil prices bounced after falling more than $1 on Wednesday. U.S. crude futures rose 0.5% to $58.34 a barrel while Brent was at $61.34 per barrel, up 0.4% on the day.

In precious metals, gold prices rallied 0.7% to $3,390 an ounce amid the uncertainties about Fed policy outlook, but still short of its record high of $3,500. DM

(Reporting by Stella Qiu. Editing by Shri Navaratnam)

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