Stocks Flat on Lackluster China Reports

Asian shares retreated back from four-month highs on Friday as a dismal survey on Chinese factory activity dulled optimism about the probabilities of US-China deal on tariffs.

The Australian dollar, which is liquid barometer of investor sentiment toward China, skidded 0.5 percent after the Caixin/Markit index of manufacturing slipped to its lowest since February 2016. That was more downbeat than the official version of the index and fueled worries over the economy.

Investor caution is piling up ahead of the US jobs data later in the session with analysts doubtful of what impact the government shutdown might have had on unemployment.

MSCI’s broadest index of Asia-Pacific shares excluding Japan slipped 0.2 percent, although that came after a soaring 7.2 percent gain in January.

Japan’s Nikkei was flat, while Shanghai blue chips help onto a 0.7 percent gain. E-mini futures for the S&P 500 eased 0.1 percent and spread betters indicated a marginally mixed beginning for the European bourses.

Stocks were slightly buoyed after US President Donald Trump said he would meet with Chinese President Xi Jinping soon to try to seal a comprehensive trade deal as the top US negotiator reported “substantial progress” in the talks.

Beijing’s trade delegation said that the talks made “important progress” for the present stage, China’s official Xinhua news agency reported.

The previously upbeat mood was also subdued somewhat by White House insistence that March 1 was a hard deadline for an agreement, which if failed would lead to an increase in US tariffs on Chinese goods.

“Analysts mostly remain deeply skeptical that a genuine trade deal can be done onthis time frame,” economists from Commonwealth Bank of Australia said in a note. “We are less pessimistic since these negotiations are being done by senior politicians, not by trade bureaucrats. Both sides also have an incentive, and arguably a growing incentive, to get a meaningful deal done.”

The optimism supported Wall Street with the S&P 500 ending Thursday with a gain of 0.56 percent. The NASDAQ increased 1.37 percent on the back of a near 11 percent increase in Facebook Inc. The Dow declined 0.06 percent.

Over January, the S&P 500 gained 7.9 percent, making it the index’s best monthly performance since late 2016 and its strongest start to a year since 1987. The NASDAQ gained 9.7 percent in the month and the Dow increased 7.2 percent.

Equity markets have also been relieved by a change of mind at the US Federal Reserve, which surprised many by apparently abandoning plans for further rate hikes.

Investors responded by pricing in a one-in-three chance that interest rates could actually be cut this year.

Yields on two-year Treasuries were down nearly 15 basis points on the week so far, which if sustained would be the biggest weekly declined since mid-2010.

That in turn has been a pressure on the US dollar, although it was off its lows on Friday. It was 0.6 percent lower so far this week against the yen at 108.85, but found some support around 108.50.

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