Regional shares and the US dollar rose yesterday after President Donald Trump eased tensions with China and spoke about a "phenomenal" plan to overhaul American business taxes over "the next two or three weeks".
The Straits Times Index put on 0.66 per cent to close at above 3,100 points for the first time since August 2015, maintaining its lead as the best performer in Asia with a 7.6 per cent gain this year.
Hong Kong rose 0.21 per cent, Shanghai notched up 0.51 per cent and Japan jumped 2.49 per cent.
"It is amazing how a world leader can influence the markets with just a few random words," CIMB economist Song Seng Wun said, referring to Mr Trump's remarks that he was on the verge of announcing the most ambitious tax reform plan since the Reagan era.
"And based on that one phone call with China, it now appears that the administration is not going to tackle China head on, as Trump had implied in his campaign rhetoric. That is positive, but he could change his mind," said Mr Song.
In a White House meeting with airline executives on Thursday, Mr Trump promised a "phenomenal" tax plan to ease the burden on businesses, but offered no details.
CMC Markets analyst Margaret Yang noted that if massive tax cuts are implemented in the United States, they will likely "inflate asset values, stimulate consumer spending and significantly boost corporate earnings of the world's largest companies". "Markets are trying to price in all those factors," she said.
Despite the likelihood of disagreements in Congress before a tax reform can be enacted, the greenback rallied 0.5 per cent against the Singdollar to 1.4209, ahead of this weekend's summit between Mr Trump and Japanese Prime Minister Shinzo Abe. The yen has weakened 1.13 per cent against the greenback on the possibility of Mr Abe making concessions, including investing in high-speed rail projects in the US.
Gold sank 1.19 per cent on a firmer dollar and as the latest bullish US economic data fuelled rate hike expectations. However, OCBC analyst Barnabas Gan continues to expect gold prices to hold up in the first half of the year because of risk aversion and global uncertainty.
CMC's Ms Yang cautioned that Mr Trump's "superficial gestures of peace could hardly cover the fact that China contributed more than 40 per cent of the US' trade deficit, which climbed to US$502 billion (S$713.7 billion) last year - the highest level since 2012".
Therefore, trade conflicts with China are probably inevitable, but unlikely to escalate to a total trade war in the near future, she added.