China and Hong Kong stock markets experienced gains on Monday as investors shifted their focus towards developments in U.S.-China trade negotiations, dismissing deflation worries within the world’s second-largest economy.

By market closing, the Shanghai Composite index increased by 0.3% to 3,647.55, marking its highest close since December 16, 2021, while the blue-chip CSI300 index rose by 0.4%. Market participants anticipate another extension of the August 12 trade truce deadline after recent discussions in Stockholm.

Despite the positive momentum, fresh data revealing a decrease in factory-gate prices highlighted the ongoing deflationary pressures faced by China. Stocks in sectors such as liquor and AI led the rise onshore. In Hong Kong, the Hang Seng Index climbed 0.2%, with the Automotive Index making notable gains. Investors are now gearing up for earnings releases from major companies like Tencent and Alibaba.