The weekend turned out to be quite positive as the G20 Summit wrapped up with an optimistic message concerning the trade tiff between the US and China. For investors the main attraction was indeed the planned meeting between Donald Trump and his Chinese counterpart Xi Jinping. Matters are still delicately poised but, on the whole, the outcome of the talks – with trade negotiations set to resume between the two countries – was slightly better than investors had been expecting. As a consequence, equity markets opened in the green while defensive assets such as gold gave up ground.
For now, the next raft of levies planned for Chinese imports will not be instigated. In Trump’s eyes, the Chinese are going to buy a massive amount of farm products, amongst other things. Additionally, US equipment firms will once again be allowed to sell goods to Huawei, China’s mobile communications behemoth, as long as business is not connected with national security. That is good news for the semiconductors sector. But clearly, for the tariffs to be dismantled and dismantled for good, China will have to make some trade-offs, especially as concerns forced transfers of intellectual property and the subsidies paid to companies.
Based on latest figures, Chinese manufacturing output has contracted, as indicated by a PMI ebbing to 49.4 versus 50.2 in the previous month. New orders were especially disappointing based on an indicator down at 46.3 – the lowest reading since February.
Saudi Arabia and Russia have both agreed to lower production quotas ahead of the official OPEC summit beginning today. OPEC views output cuts out to 2020 as necessary in order to support the price of crude oil in the face of sagging global demand and the boom in shale oil produced by the US.
This Friday, non-farm payrolls will be released by the US government and will attract a great deal of attention, considering their status as a key Fey bellwether. New hires of 155,000 are expected while the unemployment rate is forecast at 3.6%, which would be its lowest reading since 1969. The numbers for May disappointed, stoking expectations for a Fed rate cut in the second half of the year. The odds priced in by the market for monetary easing, as reflected in historically low bond yields, are probably excessive. The US economy is in its tenth year of expansion and shows no signs of quitting as consumer spending, lending and the business climate remain strong.
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