The gloomy mood across financial markets instantly brightened after the US Trade administration (USTR) announced that it will remove some items from its target list and delay 10% tariffs on certain Chinese goods until December.
This unexpected development has the potential to stimulate risk appetite in the near-term while reviving hopes of the two largest economies in the world eventually finding some middle ground on trade. Although market sentiment is seen improving further as optimism rises over China and the United States resuming trade talks in two weeks, investors should remain cautious. It is worth keeping in mind that the United States is still moving forward with 10% tariffs on much of the $300 billion in Chinese imports first disclosed in May. Should tensions return before the scheduled talks in two weeks, risk aversion could make an unwelcome return.
Chinese Yuan roars back to life
A return of risk appetite injected the offshore Yuan with enough inspiration to steamroll the Dollar, gaining roughly 1.25% during Tuesday’s trading session.
The USDCNH tumbled back towards the 7.00 level as easing trade tensions boosted investor appetite for the Chinese Yuan. Appetite towards the currency is set to be influenced by the pending industrial production and retail sales data from China on Wednesday. Should the set of reports meet or exceed market expectations, the offshore Yuan has the potential to extend gains against the Dollar.
Oil rides higher on easing trade tensions
Oil bulls wasted no time in shifting to higher gear following the Trump administration’s unexpected pull-back from a hardline stance on Chinese trade.
Oil prices rallied roughly 5% on Tuesday and have scope to extend gains as easing trade tensions reduce fears over slowing global growth and faltering demand for Crude. The sense of positivity rippling across markets is also supporting appetite for WTI Crude with prices trading around $56.70 as of writing. A daily close above $57.00 should encourage a move higher towards $57.50.
Commodity spotlight – Gold
Gold depreciated almost $50 on Tuesday as investors re-found their lost appetite for riskier assets.
The precious metal tumbled from the $1535 six year high after the United States surprised markets by delaying tariffs on some Chinese goods. While Gold is seen extending losses in the near term amid the risk-on mood, the precious metal remains bullish in the medium to longer term. For as long as geopolitical tensions, Brexit uncertainty and central banks across the globe continue easing monetary policy, Gold bulls remain in control.
Technical traders will continue to monitor how prices behave above the $1485 level. A breakdown below this point may open a path back towards $1470.