US-China Trade Truce Boosts Risk Assets

 

US and China agreed to resume trade talks over the weekend. After hitting an impasse two months ago, President Trump and Chinese Preside Xi Jinping managed to find common ground during a private meeting alongside the G-20 summit in Japan on Saturday. Much of the acquiescence came on the part of Trump, who agreed to suspend new tariffs on Chinese goods and remove trade restrictions on Huawei Technologies Co. In return, Xi signaled that China would buy more products (amount undisclosed) from US farmers. Ultimately, the major trade conflicts between the world’s two largest nations remain outstanding, and both presidents will be under pressure from their respective political parties to hammer out a broader agreement, the negotiation of which Trump has stated were “already underway”. The US dollar gained 0.7% on the day vs. major currencies.

 

 

Major US stock indices roared to new highs on China-US trade news. The tech-heavy Nasdaq led the way with a 1.06% gain on the day, as Apple gained more than 1.8% on the positive outlook. In contrast, safe haven assets experienced a steady selloff, with gold declining as much as 2% throughout the trading session. US Treasurys similarly saw demand diminish, as yields/swap rates climbed 2-4bps across the curve, and the yield on the 10-year note finished near 2.02%. Despite the progress in talks with China, the Fed Funds futures market is still pricing in a 100% probability of a rate cute by the FOMC at its July meeting.

 

 

OPEC agrees to extend production cuts through Q1 of 2020, lifting US crude 2.8% to over $60/barrel. OPEC members will maintain current production levels for additional nine months, helping to offset the geopolitical uncertainty that has led to a global decline in demand. A point of contention at the meeting centered around Russia’s participation in the agreement once the newly agreed 9-month extension comes to an end next year, as Iran voiced concerns that Russia may act unilaterally, undermining the cartel. Ultimately, OPEC’s largest producer Saudi Arabia threw its support behind Russia helping to resolve the brief standoff.