G20 Fan Animal Spirits

Overview: The US and China kept their trade guns cocked at each other but offered the last opportunity for a negotiated settlement before escalation. What is billed as a 90-day freeze on tariff increases is really only 60 days beyond January 1 when Trump had threatened to increase the 10% tariff on $200 bln of Chinese goods to 25%. The US and China could not agree on a joint statement, and there appear to be differences between the two on what was agreed. Moreover, early today Trump tweeted that China would reduce and remove tariffs on US autos, which had not been announced previously. At the same time, Russia and Saudi Arabia agreed to extend their pact, boosting the likelihood that OPEC+ will announce output cuts later this week. Efforts to support the oil market also came from an unexpected source. The Canadian province of Alberta announced a 325k barrel a day cut (8.7%) starting in January. Equities have rallied strongly. The MSCI Asia Pacific Index nearly matched last week's 2% gain. China, Hong Kong, Taiwan, and Singapore markets led the advance, gaining more than 2% each. India was the sole exception. The rupee is also underperforming in the face of the US dollar's pullback. Higher oil prices appear to be the drag. Oil has rallied 4-5% after last month's 22% plunge. European shares are higher, and the Dow Jones Stoxx is up more than 2% in late morning turnover in what could be the biggest advance in eight months. The high beta dollar-bloc and Scandi currencies are leading the move against the US dollar. Among emerging markets currencies, the South African rand, the Mexican peso, and Chinese yuan are up over 1%.

Asia Pacific

China reportedly agreed to step up its purchases of US agriculture and industrial goods (including energy) immediately. This is one of the measurable outcomes even though the amounts were not agreed. China also agreed to classify fentanyl as a controlled substance, which would allow greater over it, which has been a scourge in America (and Canada). Neither the US nor China claimed any change in the Made in China 2025 initiative or US arms deals with Taiwan.

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Read more by Marc on his site Marc to Market.

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