Volkswacht Bodensee - Markets boosted by China-US truce extension, inflation in focus

Donald Trump's widely expected trade announcement avoids the reimposition of sky-high levies and allows officials from Washington and Beijing to continue talking into November to settle their standoff.

In an executive order, the White House reiterated its position that there are "large and persistent annual US goods trade deficits" and they "constitute an unusual and extraordinary threat to the national security and economy of the United States".

However, William Yang, an analyst at the International Crisis Group, said: "Beijing will be happy to keep the US-China negotiation going, but it is unlikely to make concessions."

With the president's tariffs set and talks with various trading partners ongoing, markets are now turning their focus back towards the possible economic outlook and the impact of Trump's trade war.

First up is the US consumer price index (CPI) later in the day, which could play a major role in the Federal Reserve's decision-making with regard to interest rates.

Bets on a cut have ramped up in recent weeks owing to signs that the world's number one economy is showing signs of slowing, with figures indicating that the labour market softened considerably in the past three months.

Expectations are for CPI to come slightly above June's reading, but analysts warned investors were walking a fine line with a forecast-topping print likely to dent rate cut hopes and a too-weak read stoking economic fears.

"I'd imagine, for equities at least, given the comfort blanket that the surge in September cut expectations has provided recently, that a hotter-than-expected figure could see some fairly sizeable downside," said Pepperstone's Michael Brown.

While there have been warnings that the tariffs will stoke inflation, National Australia Bank's Ray Attrill said: "The larger tariff impacts... probably will not be felt until August/September, with firms now only gaining some clarity on the degree of reciprocal tariffs.

"The current profit reporting season has noted firms on the whole were waiting for greater clarity on final tariff rates before adjusting prices."

Also on the agenda this week are wholesale prices and retail sales, with the Fed's favoured gauge of inflation at the end of the month. Bank officials are then set to make their decision in the middle of September.

Forecasts are for a reduction at that gathering and one more before the end of the year.

Asia's markets rally was led by Tokyo's Nikkei 225, which briefly soared almost three percent to hit a record high of 42,999.71 on renewed optimism over the Japanese economy after officials reached a deal to avert the worst of Trump's tariffs.

IwaiCosmo Securities said in a market commentary that "easing tensions over US-China trade talks, as well as speculation about the US's imminent lowering of (interest) rates" had helped boost investors' hopes about the recovery of Japanese companies.

The gains came as traders returned to work after a long weekend.

Hong Kong, Shanghai, Taipei, Mumbai, Jakarta and Manila also advanced with London, Paris and Frankfurt.

Sydney was also given a lift by news that the Australian central bank had cut interest rates.

Seoul, Singapore and Wellington dropped.

- Key figures at around 0810 GMT -

Tokyo - Nikkei 225: UP 2.2 percent at 42,718.17 (close)

Hong Kong - Hang Seng Index: UP 0.3 percent at 24,968.68 (close)

Shanghai - Composite: UP 0.5 percent at 3,665.92 (close)

London - FTSE 100: UP 0.3 percent at 9,153.20

Euro/dollar: UP at $1.1621 from $1.1617 on Monday

Pound/dollar: UP at $1.3458 from $1.3435

Dollar/yen: UP at 148.25 yen from 148.12 yen

Euro/pound: DOWN at 86.35 pence from 86.47 pence

West Texas Intermediate: UP 0.3 percent at $64.14 per barrel

Brent North Sea Crude: UP 0.4 percent at $66.89 per barrel

New York - Dow: DOWN 0.5 percent at 43,975.09 (close)

C.Koch--VB