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Stocks soars post US-China trade talks, OPEC in focus

The long awaited trade talks between President Trump and Xi Jinping in Japan over the weekend appear to have gone well. 

The two leaders met to discuss the trade standoff at the G20 meeting, and a small bit of progress seems to have been made.

Both sides agreed not to impose new tariffs on each other, but at the same time, President Trump is in no hurry remove the existing levies on Chinese imports. The US administration will take a softer stance in relation to blocking US firms from selling goods to the Chinese company Huawei. Mr Trump said the decision was taken at the request of US tech firms and Xi Jinping. US economic advisor, Larry Kudlow, said there wouldn’t be a complete reversal of the ban, but some US companies would be permitted to do business with Huawei if it doesn’t threaten national security.

The slight easing up of restrictions on Huawei was a step in the right direction for the trading relationship, and Beijing have agreed to purchase more US agricultural machinery in a bid to boost political relations. The extremely important issue of intellectual property protection continues to be a concern for the US, and there is no amount of tractors or combine harvesters that China can buy to make that issue disappear. The US-China trade spat seems to have cooled a little over the weekend, but there is still a long way to go before it is resolved. Investors have reacted well to the news as stocks rallied in Asia overnight, and European indices are called higher too.  

President Trump made ‘tremendous progress’ over the weekend as he met Kim Jong-un in North Korea. It makes Mr Trump the first sitting US president to visit the state, and it was viewed as a boost to US-North Korean relations, and for political stability in that region.     

On Sunday, China released the official manufacturing PMI and non-manufacturing PMI reports. The manufacturing PMI report came in at 49.4 and economists were predicting 49.5, and previous reading was 49.4. The non-manufacturing update was 52.4, and the reading was tipped to be 54.2, and keep in mind the May reading was 54.3.      

The Caixin survey manufacturing PMI is deemed to be more objective than the official reports published by the Chinese government. The Caixin manufacturing update was 49.4, and the consensus estimate was 50. The reading overnight was the weakest since January.  

This morning the major economies of the EU will reveal their manufacturing PMI reports, and they will be released between 8.45am (UK time) and 9.30am (UK time). The Italian, French, German and UK reports will be announced, and dealers are anticipating 48.8, 52, 45.4 and 49.2 respectively.

Recently there has been speculation the Federal Reserve will cut rates this year to assist the US economy, which has shown some signs of slowing down. On Friday the core PCE reading held steady at 1.6%, meeting forecasts. The report is the Fed’s preferred measure of inflation, and the slightly soft reading suggests that demand is exactly booming. The Chicago PMI report dropped to its lowest in over three years on Friday. The US ISM manufacturing PMI report is tipped to be 51, and it will be released at 3pm (UK time).

The OPEC meeting will be in focus for the next 48 hours, although we heard over the weekend the existing production cuts are likely to be extended for another nine months. Saudi Arabia and Russia are keen to keep the existing output levels in place for another six or none months, and that is likely to put a floor under the price of oil in the near-term.   

EUR/USD – has been largely pushing higher since late May, and a break above 1.1400 might bring 1.1448 into play. A move back below 1.1200 might pave the way for the 1.1110 area to be retested.

GBP/USD – has been driving lower since mid-March, and if the bearish move continues it might encounter support at 1.2476 region. The 1.2800 area might act as resistance.

EUR/GBP – has rebounded for over one month, and if it holds above 0.8800, it might bring 0.9000 into play. A move to the downside might bring the 200-day moving average at 0.8781 into play. 

USD/JPY – has been in a down trend since late April, and if the bearish move continues it might target the 106.00 mark. Resistance might be found at the 50-day moving average at 109.62.






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