- US/China deal
- Markets
- Oil
- USD and CNY
US-China truce pushes markets higher
Stocks markets are trading heavily in the green across the globe as a temporary truce in the trade war between the US and China buoyed investors.
The working dinner between Trump and Xi on the side-lines of the G20 over the weekend generated as good a result as we could have realistically hoped for, with both sides agreeing to hold off on more tariffs and work towards a more comprehensive agreement. Three months is not a very long time to achieve this so there are naturally plenty of sceptics out there but this is a rare piece of good news in a conflict that has yet to produce any.
Even if three months is not long enough to agree on terms that avert more tariffs and removes those already imposed, it could be long enough to agree a broad outline of what the future relationship will look like and then extend the truce. The important thing is that, while we may be sat here in three months discussing the increase in tariffs after talks failed to produce a solution, there is now a chance that we aren’t and investors are understandably lifted by that prospect.
Oil buoyed by deal and hints at output cut this week
Stocks aren’t the only things benefiting from the truce, oil is soaring this morning with Brent and WTI up around 4%. A trade war is clearly a big negative for the world economy and therefore oil demand so any agreement that could prevent it is naturally bullish for Brent and WTI prices. The conflict has been one of a number of negative factors that’s dragged oil lower over the last couple of months, even now it’s trading around 30% off its peak.
The news comes ahead of the OPEC+ meeting this week - the last Qatar will be attending after it announced it will be withdrawing from the cartel - and after Putin hinted at an extension to the oil output agreement which is also intended to lift prices. The question now is how much they will cut and whether it will be sufficient to keep oil from making another run lower.
USD/CNY avoids breaching seven handle for now
From a currency perspective, the deal over the weekend has taken some of the pressure off the yuan, which had the greatest amount to lose from continued escalation of the trade war. The dollar is off around four tenths of one percent as a result, with the currency having been one of the greatest beneficiaries of the trade war to date due in part to the large deficit the US currently runs.
The deal keeps the dollar from breaching the much talked about seven handle against the yuan, for now, a level many have suggested is technically very important. Obviously, this is all dependent on the truce being the first step towards a broader agreement, rather than just a three month delay.
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