Markets have rallied strongly this morning on the Sydney open as a truce was declared over the weekend in the Trade War between the US and China. The US have agreed to temporarily halt the increase of tariffs from 10% to 25% for 90 days and China have agreed to increase the amount of agricultural and industrial goods that it purchases from the states. We saw significant gapping in currency markets this morning with the risk currencies opening much higher than Friday’s closing levels with the Aussie and Kiwi stand out performers, especially against the Yen. Futures are pointing to a positive start to the session with global equities expected to take a good boost from this weekend’s meeting. The Russians and Saudi’s also caught up in Buenos Aires and agreed to continue cooperation on Oil production, OPEC+ are meeting later this week and concrete plans on future volume could help the Oil price. WTI has managed to rally off of $50/b a few times in the last week and Brent is also looking better bid on the prospects of production cuts into the new year.
This is probably the best case scenario that markets were hoping for from the meeting of Trump and Xi and we’ve seen that anticipated ‘risk on’ rally this morning. However, analysts are already looking at the details and it doesn’t take long for doubts to come through on the strength of the agreement. A simple look at the two press statements from either side shows some quite glaring differences of opinion and this could lead to a relatively short lived lift in investor confidence. Traders will now be watching closely for further comments from either side in the coming week and will expect an increase in volatility again if this weekend’s agreement starts to look like it’s built on less than solid ground.
It looks like being a busy week ahead for financial markets with both Geo-Political issues and fundamental events set to influence market direction. Clearly the fallout from the G20 will continue to resonate around the market as will the Brexit issue in the UK which is starting to heat up even further. PM May is attempting to push her plans through parliament whilst dealing with a plethora of headwind issues including further resignations in her party, increasingly hostile allies and a possible vote of no-confidence from the opposition. On the fundamental side of things, we have two major central bank meetings, several Fed speakers, an OPEC gathering in Vienna and a range of tier 1 economic data due for release culminating in the US job numbers on Friday. Given all that coming up it’s unlikely to be one way traffic for the markets this week and traders will be strapping in for more sharp moves.