Optimism is building ahead of this weekend's G20 meeting in Osaka. This morning, the SCMP ran a story stating that "the. U.S. and China have tentatively agreed to another truce in their trade war to resume talks aimed at resolving the dispute. Details of the ceasefire will be laid out in the press releases that will be published before the Trump-Xi meeting on Saturday.
So, with the fear of worst-case scenario outcomes fading as demand for risk premium evaporated Asian stocks are generally higher, U.S. yields firmer and the U.S. dollar a tad better bid as the key bellwether USDJPY stumbles to its most significant drop since April.
I don't think the SCMP article is catching anyone by surprise as that has been the market base case for weeks as most surmised the actual meeting between U.S. President Trump and Chinese President Xi at the G20 would be more pomp and ceremony with mutual understanding on delicate issues surely hammered out beforehand. More so after that " friendly phone conversation" which from my view was the most prominent relief valve for bulging trade tensions.
Singapore
In Singapore, MAS said its monetary policy remains appropriate but that the city state's GDP is likely to be lower than it had previously forecasted. Expectations of policy ease are growing, but spot price action has been subdued since the dovish comments from MAS Managing Director Menon. SGD NEER is still hovering around 1.65%.
Gold
So, with the U.S. backing off an immediate tariff hike gold has drifted lower but has remained bid above $1400, but precariously so against the backdrop of a strengthening dollar. But with more than enough uncertainty in the market to go around besides G-20, those uncertainties should keep gold prices in check
Fed
There is still some lingering debate on the Fed front as the market spent a relatively lacklustre session digesting San Fran Fed president Daly very succinct economic views. In her opinion inflation remains a concern and on policy, she said acting early with preventative measures is far preferable to having to move off zero rates in the future. Suggesting a rate hike is on the table in July but more of the garden variety type.
AUD and NZD
Both AUD and NZD have continued to, but with U.S. yields moving higher I would suspect we could see some dollar short get flushed across a G-10 space.
Asia FX
I would suspect by the relatively muted price action in ASEAN currencies, that vast bulk of trade war long USD hedges have already been flushed.
While local currencies are recovering as hopes rise that a positive outcome on US-China trade is improving but until the hard-economic data conditions improve, and this goes for G-10 also, the rally in EM FX and the euro could prove less hardy if growth conditions don't improve.