Reports over the weekend that China and the US are closer to an agreement on trade matters may see Asia Pacific markets ignore negative Friday night leads from Europe and the Americas. The US dollar is moving higher in early Monday trading, potentially in response to news released after markets closed last week.

Both sides of the potential trade war have given ground. The US has placed any new tariffs on hold, and China has agreed to buy more US goods and services. While there remains considerable differences between the two countries, markets may interpret the latest developments as confirmation that this is a trade negotiation rather than a threat to the global economy. 

The formation of a new populist government coalition in Italy could contain enthusiasm, especially for European exposures. A straight combination of the policies of the League and Five Star looks economically disastrous with huge spending increases alongside massive revenue cuts. The suggestion that broader Europe should forgive 250 billion Euros in Italian debt looks ludicrous against this policy background. However the Euro may continue to weaken until there is an official response.

Commodity market action suggests industrial sentiment is mixed. Oil rose, but copper fell, and precious metals are languishing at lower levels. The weakness may be offset by stronger agricultural markets, led by a surge in wheat prices.