Financial market research and analysis

Trump’s decision to extend the trade truce deadline and hold off on increasing US tariffs on Chinese imports has seen a collective sigh of relief. Although a level of caution remains as the new week kicks off. Chinese shares jumped over 3% overnight thanks to substantial progress in trade talks over the past two weeks however the risk on trade elsewhere was relatively short lived.

On upbeat sentiment, the risk sensitive Aussie dollar, which is considered a liquid proxy to China rose 0.4% however gains were then pared. The safe haven yen dropped lower with USD/JPY finding support at 110.60.

Interestingly the dollar remained broadly flat versus a basket of currencies following Trump’s tweet. This is notable given that the dollar was the preferred safe haven during the escalation of the US – China trade tensions. Gold is also flat with no clear loss of demand for the precious metal and safe haven following the announcement.

The trade extension has not come as a complete surprise to traders. Last week, Trump was dropping hints that the March 1st trade truce deadline was a fluid date; not one set in stone. So whilst China, which has the most to gain from a deal is trading significantly higher on Monday, elsewhere we expect the market reaction to be limited. Let’s not forget that this is not a deal. Progress has been made but reports also suggest that there is still some ground to be covered before the Summit between President Trump and China’s Xi Jinping. Traders are acutely aware that talks will be harder in this final sage.

Oil Declines As US Production Increases

Oil gave up earlier gains, despite progress in trade talks, thanks to increasing US supply. Surging exports from the US  are forcing other producers, particularly Middle Eastern producers to offer crude at a discount. US output hitting records of 12 million barrels per day is countering the positives from easing trade tensions, sanctions on Iran and Venezuela and OPEC cuts.

Pound Upbeat As Theresa May to Update Parliament

The pound was holding its ground versus the dollar at $1.3065. Pound traders are clearly taking an optimistic approach as Theresa May is expected to update Parliament on her progress in talks with Brussels to amend the Irish backstop arrangement. Theresa May has also said that she will hold a meaningful vote in Parliament on 12th March, just 2 weeks before the UK is set to leave the EU. This is a gamble that she hopes will buy her more time for negotiations. But she risks infuriating ministers who are already prepared to revolt against her.

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