Asia shares pulled higher by Nikkei surge, China GDP beats

By Wayne Cole SYDNEY (Reuters) -A surge in the Nikkei led Asian markets higher on Monday as Japan looked close to installing a new prime minister, while a reading on U.S. inflation this week is expected to be no more than a speed bump on the way to further rate cuts there. Data showed China's economy grew 1.1% in the third quarter, to top forecasts, while industrial output also beat with a rise of 6.5%, which could reinforce Beijing's determination to fight a lengthy trade war with the United States. On an annual basis, its 4.8% growth still marked the slowest pace in a year. A continued fall in Chinese home prices also showed the property sector remained a big drag on the economy, household wealth and spending, with retail sales up a modest 3.0% on the year. Investors are hoping from more stimulus as policymakers convene this week to discuss the latest Five-Year Plan, though markets have got used to being disappointed. U.S. President Donald Trump told reporters he could lower tariffs on China as long as Beijing did "things" for the United States too, including resuming purchases of soy beans. Figures due on Friday are expected to show U.S. core inflation held at 3.1% in September, but should not trouble markets given the Federal Reserve has not pushed back against pricing for cuts. "Chair Powell has highlighted the importance of signs of a weakening job market in the Fed's policy considerations," said Michael Feroli, head of U.S. economics at JPMorgan. "That confirmed widely held expectations that the FOMC will cut rates again at its next meeting in just over two weeks." Futures are fully priced for a quarter-point easing this month, and another in December, with rates seen reaching 3.0% by the middle of next year. Japan's Nikkei led Asia higher with a jump of 2.8%, encouraged by news the Liberal Democratic Party and the Japan Innovation Party have agreed to form a coalition government, setting the stage for the country's first female prime minister. Analysts assume Sanae Takaichi would be pro-stimulus and against further hikes in interest rates, a negative for the yen and bonds but a plus for equities. Shares in South Korea added 1.0%, while MSCI's broadest index of Asia-Pacific shares outside Japan firmed 1.3%. Chinese blue chips gained 0.8%, having lost ground last week. EUROSTOXX 50 futures added 0.7%, while DAX futures firmed 0.7% and FTSE futures 0.3%. For Wall Street, both S&P 500 futures and Nasdaq futures rose 0.3%, with much riding on how earnings unfold this week. HIGH EXPECTATIONS FOR EARNINGS S&P 500 companies overall are expected to have increased earnings by 8.8% in the third quarter from a year earlier, according to LSEG IBES, and strong results will be needed to justify the market's lofty valuations. B0fA analyst Savita Subramanian is tipping earnings growth of 11%, led by a 20% rise in the tech sector and Nvidia alone driving a quarter of growth in total earnings per share. Reports include Tesla, Ford, GM, Netflix, Procter & Gamble and Coca-Cola, along with aerospace and defence giant RTX and tech stalwarts IBM and Intel. The UK also has major banks reporting this week while software giant SAP will make a splash in Germany. The prospect of a series of Fed rate cuts has underpinned bonds, with 10-year yields falling almost 14 basis points last week to currently stand at 4.011%. The slide in yields has pressured the dollar against European and higher-yielding currencies, with the euro at $1.1656 having edged up 0.3% last week despite a surprise credit downgrade of France. The yen had its own problems as investors have scaled back pricing for a Bank of Japan rate hike this month to just 22%, with a move in December put at 50-50. The dollar was flat at 150.55 yen, while the euro was steady at 175.64. The dollar index dipped a shade to 98.431. In commodity markets, gold remained in high demand after jumping almost 6% last week to as far as $4,378.69. The metal was trading at $4,266 an ounce, with $4,200 now acting as chart support. [GOL/] "On a three-year horizon, we believe that there is more room for gold prices to rise, eventually reaching a target of $5,000 an ounce in 2028 due to a structural change in demand for the metal by investors and central banks," said Lorenzo Portelli, head of cross-asset strategy at Amundi Investment Institute. Oil prices continued to be weighed by ample supplies as OPEC+ keeps raising its output. [O/R] Brent eased 0.4% to $61.02 a barrel, while U.S. crude dropped 0.5% to $57.24 per barrel. (Reporting by Wayne Cole; Editing by Shri Navaratnam and Kim Coghill)

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