Expectations around the potential resolution of the trade dispute between China and the US were reset over the weekend. This means market attention turns to central bank activity. The US Federal Reserve and the Bank of England, among others, will issue interest rate decisions and accompanying statements this week. Overnight rallies across asset classes suggest investors are expecting more “not too hot, not too cold” conditions.
The National People’s Congress in China endorsed new foreign investment law late last week. While critics describe it as more intention than rule, it takes several positive steps towards US concerns. Over the weekend White House commentary that mentioned an “agreement over the next 3-4 weeks” bought time for negotiations of complex matters. It will be back, but for now trade concerns move out of the spotlight.
Risk assets and safer havens rallied overnight, indicating optimism is based on easier monetary conditions rather than better growth prospects. European and US shares, oil and industrial metals rose alongside bonds and gold. The US dollar weakened modestly and commodity currencies found support.
Australian shares are set for a 20 point opening gain, and Asia Pacific trading may see a continuation of the positive overnight momentum. However Japanese futures are in the red, and the 2%-3% rally in China yesterday may see investors take corrective action today.