On Thursday, Asian stocks rose as investors held out a hope that trade tensions could ease after the U.S. President Donald Trump exempted automakers from tariffs for a month, while the euro stood ahead of the European Central Bank policy meeting.
In Asian hours, Japanese government bonds fell sharply after German long-dated bonds were swept up in their biggest sell-off in years as the parties were in talks to form Germany's new government and agreed to try loosen fiscal rules. Japan's 10-year government bond yield hit a near 16-year high as sentiment remained fragile.
On Tuesday, much of the focus remained on the escalating global trade war after 25% tariffs on imports from Mexico and Canada were imposed along with fresh duties on Chinese goods, sparking fears about economic growth.
However, on Wednesday, the White House said Trump will exempt automakers from his 25% tariffs on Canada and Mexico for one month as long as they comply with existing free trade rules. This led U.S. stocks to rise a lot, shoring up Asian markets in early trade. MSCI's broadest index of Asia-Pacific shares outside of Japan was up by 0.86%, while Tokyo's Nikkei gained 0.8%.
Head of research at Pepperstone, Chris Weston, said: "Obtaining any kind of reliable signal from the headlines is almost impossible. One must truly feel for those businesses that need to plan - with tariff policy changing almost daily, the ability to have any sort of confidence to make strategic decisions is currently almost impossible - this will have implications."
Shares of China and Hong Kong rose on Thursday, a day after Beijing set an ambitious economic growth target and vowed more support for domestic consumption and the tech industry getting caught up in a trade fight with the United States.
China's Blue-Chip Index rose 0.6% while Hong Kong's Hang Seng Index, one of the best performing major stock markets in the world, surged by 2.4%. Hang Seng is up by 20% so far this year and reached its highest level since January 2022 on Thursday.
Investors will focus on the European Central Bank meeting on Thursday where it is widely expected to cut interest rates again as policymakers contend with trade wars and increased military spending in the region.
This meeting comes a day after the euro jumped 1.5% and a selloff in German bonds as the parties were in talks to form Germany's new government agreed to create a 500 billion euro infrastructure fund and overhaul borrowing rules.
German's 10-year Bundfutures fell to 0.6% on Thursday, later indicating a likely decline in cash bond prices. On Wednesday, the 10-year yield of the euro zone's benchmark, climbed 30 basis points, in its biggest daily rise since mid-March 2020, at the height of the pandemic crisis.
The euro stood at a four-month high of $1.0808 in the early Asian hours, on course for over a 4% rise this week with its strongest weekly performance since March 2009.
FX Markets Analyst at Ballinger Group, Kyle Chapman, said: "Is it the game changer that switches Germany from a drag-on activity to an engine of growth? It won't be a magic bullet, but it is a step in the right direction. While Germany has plenty of space to rack up some more debt, the likes of France and Italy do not have the same privilege, and a fiscal risk premium might put the reins on a stimulus-fuelled rally."
Since early November, the dollar index which measures the U.S. currency against six other units, eased to 104.11, touching its lowest level.
In commodities, gold prices were steady at $2,924.11 per ounce as traders await the U.S. non-farm payrolls report on Friday for cues on the Federal Reserve's policy path.
This week, oil prices tried to catch a break after stumbling in the previous sessions, undermined by a larger-than-expected jump in U.S. crude stocks, OPEC plans to increase output, and U.S. tariffs on key oil supplies.
Over three years, Brent futures on Wednesday stayed close to the lowest level.
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