US markets extended gain on Monday as sentiment improved on renewed round of trade talks between US and China in Beijing this week.

Intensive discussion on trade imbalances, intellectual property protection, cyber security, forced technology transfer, and follow-up on previously agreed items. Given the fact that this round of negotiation is conducted at a vice-ministerial level, it probably will not yield a major breakthrough for now. Both sides will try to reach a common ground and set stage for further discussion among the senior-level trade representatives later this month.

Some of the easier deals, such as importing of US agricultural and energy products, are likely to strike first, as those would mutually benefit both sides. The ‘structural changes’ in the way China handles trades and technology issues as demanded by the White House, however, will take longer time to reach a common ground. Any policy shift carried out by Beijing is more likely to be slow and gradual, to allow corporates to adapt and adjust to new level of regulatory requirements.

The trade negotiation is probably going to extend beyond the 90 days truce period if both sides cannot reach agreements on all the issues on the table. But the risk of additional trade tariffs beyond the deadline is contained as both sides have already felt the pain of this trade war – investment sentiment, consumer confidence, manufacturing PMIs have all fallen sharply and led to stock markets tumbling since October last year.

It is worrisome that US is now seeing China as more of a competitor, rather than a business partner. The constructive trade relationship that have been in place for the last four decades are now coming to a critical turning point. This adds tremendous political and economic uncertainty over global economic growth into 2019. On a strategic level, the white house is probably trying to leverage on trade war to contain China’s technology upgrade and rising influences in the region.  

Dollar index retraced to the 95.2 area, hitting by disappointing US non-manufacturing PMI readings last night as trade uncertainties weighed on purchasing managers’ views on the economic outlook. The reading has fallen to 57.6 from 60.7 from last month, and below consensus forecast of 59.0.

EUR/USD attempted to challenge a key resistance level at around 1.146 area this morning, breaking out above this level will open room for further upsides towards the 1.161 area.

Gold and Yen – perceived safe havens – have consolidated for a third day as risk sentiment swung to the positive side on dovish bias Fed, China stimulus and resumed trade negotiations. Commodity currencies AUD and CAD, however, rebounded sharply for a third day on renewed hope for China stimulus to boost commodity prices.  

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