It’s a ceasefire for now


The much anticipated Trump/Xi meeting in Osaka, Japan, on Saturday went largely as we expected, resulting in a truce on the trade war, with Trump describing China as a “strategic partner.” Negotiations will continue, with no new tariffs in the cards for now.

President Trump offered concessions to President Xi, holding off on new tariffs while easing of restrictions on tech company Huawei. China agreed to make unspecified new purchases of US farm products and return to the negotiating table. But, Trump emphasized that the holding back on new tariffs was only “for the time being,” and, with regard to Huawei, said that the company will remain on the blacklist, and that its future won’t be decided until the end of trade talks. Fundamental difference around industrial strategy and national security remain, specifically US assertion that China is cheating its way to tech dominance. With 11 rounds of trade talks having come and gone, it remains unclear whether a new round of talks will produce a breakthrough.

Markets will likely breathe a sigh of relief, even though there have been few details offered following the meeting.

The return to the negotiating table of the world’s two biggest economies was tonic for global stock markets, more than offsetting weak PMI manufacturing data out of both Asia and Europe.

The Dollar has firmed up. The USDIndex rallied by nearly 0.5% in making a 10-day high at 96.60. New highs were seen in early Asia-Pacific trading and then again after London markets had opened. EURUSD printed a 10-day low at 1.1316, while there was a concurrent theme of safe havens underperformance, particularly during the early part of Asia-Pacific trading. USDJPY surged to a 12-day high at 108.52, while USDCHF rallied to 0.9842.

FEDLooking to the short-term, the strong post-G20 risk-on theme, was interpreted by markets as meaning that the Fed is less likely to cut rates aggressively, with narratives promoting the view that latest truce in the US-Chain trade war will at the least kill the possibility for the Fed to cut rates by 50 bp at its July FOMC.

In the bigger picture, the renewed truce in the US-China trade war which ignited a lowering in Fed easing expectations for now, could bring patience characterization of the policy stance back for Fed, with the prospect of a rate cut later in the year. This is something that could be interpreted as a less dovish view of the Fed, and could boost USD away from the currently 3-month low levels.


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Andria Pichidi

Market Analyst

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