Asia Open : China to narrow's the scope for trade discussion?

 I guess the big question is, why now!
 
If you thought this trade war calm was too good to last, you are the big winner this morning after Chinese officials are now signalling they're more and more reluctant to agree to a broad trade deal that some are viewing as a shrewd and perhaps dangerous game of political brinkmanship. China might think their hand just got much stronger due to the impeachment push and the latest round of horrendous US manufacturing data.
 
This revelation comes on the cusp of the high stakes game of US-China trade negotiations poker, and even if China is playing a bluff, it won't go over well with the Trump administration. 
 
While a partial trade deal was the best outcome most were expecting, China hardball tactics don't set the stage for amenable trade discussion. 
 
The news report blindsided the markets as China has been making definite overtones for weeks. However, with the US economy taking a decisive turn for the worst, China may be borrowing a page out of the Trump trade policy book which sees China now turning the screws on the US. However, at this stage, the market is still waiting for clarification, and if China walks down these innuendos.  
 
What I'm referring to is the latest round of US economic PMI and ISM data that paints a very gloomy picture if the US manufacturing sector is shifting into a possible recession. But it might be the tale of the PMI tapes between the battle of the trade war behemoths that does suggest that China is now getting the upper hand which is empowering this new level of political brinkmanship. Remember the US manufacturing sector is the chunk of the economy the President most needs to defend and the specific segment of the economy that trade war was supposed to support. 
 
Also, Chinas supply chains are recovering much quicker than expected as they look to supplant US trade with regional neighbours.
 
 So far markets haven’t overreacted to the news. Sure US-China trade talks are set to resume this week. However, interest around the event has remained subdued though, and if anything, there was light interest playing for a potential deal - but with conviction lukewarm, perhaps only the more optimistic bets will get unwound this morning. However, the last thing the market needs at this stage of the game was another pony on the trade war carousel to shift the odds.
 
NFP 
 
For those looking for some FED policy clarity in Friday’s NFP data, the print was considered little more a middling muddled maze of mediocrity. In other words, it offered up a big fat nothing burger for market participants to digest while providing little if any guidance.
 
Still, the aftershocks from the disappointing US ISM data continues to linger as the focus remains on the slowing US economy. 
 
 In the wake of last weeks US economic data carnage, accurately the weaker US ISM prints, this week's run of financial data may take a back seat to Fed speak.  The US markets are at an essential policy juncture, and this week could provide a good look into FOMC frame of mind in the context of last Friday’s mediocre and middling Non-Farm Payroll report.
 
Undoubtedly, Fed officials are likely just as concerned with the global growth outlook at this point. As such, trade policy uncertainty is near the top of the list in this regard. Therefore, Chinese Vice Premier Liu He's scheduled visit to Washington to meet with USTR Lighthizer and Treasury Secretary Mnuchin this Thursday will be monitored intently by market participants.
 
Oil markets
 
Oil has recovered from Thursday's lows but remains under pressure in due to bearish macro developing, and now we have US-China trade talk confusing which are now seemingly muddling the landscape. Trade war winds aside, the macro headwinds outweigh supply concerns for oil now, despite tensions in the Middle East and a reduced spare capacity pillow. However, given the dreary macro data has yet to quantifiably into a dent to global oil demand, and recent inventory builds have been broadly in line with seasonal expectations. Trader may also be reluctant to run too far ahead of the current supply and demand data.
 
Moreover, while traders may appear complacent about middle east supply risk, it may simply be their immediate reverting impulse to balance risk premiums against a backdrop the global supply pool and tepid demand projections that see them better sellers of oil risk in this environment. 
 
Gold Markets
 
The upcoming trade talks are a huge focus given that this year push to $ 1550 was primarily driven by the re-escalation of trade tensions between the US and China at the start of August. So not too surprising, we saw a gap open higher int the Comex on the news China is narrowing the scope for a trade deal.  
 
However, Gold's current movement is being critiqued against bond yields and what the Federal Reserve is going to do next. Lower real rates are what ultimately count, and everything else is noise.
 
Gold is currently precariously perched above $1500; apparently, investors are trying to reacquaint themselves with this level once again.
 
The market remains supported on dips likely by opportunistic investor buying, which has probably been responsible for gold's spectacularly recovery back to current levels in the absence of support from physical markets, particularly India demand. 
 
However, there does not appear to be a significant urgency to re-establish longs.
 
So, while price action seems supportive enough to suggest a long bias remains intact. However, market participants likely need further evidence from the Federal Reserve Board that they are shifting to an easing bias to push prices significantly higher. 
 
 Currency markets
 
Although USDASIA has bounced higher at the open, I think this is just an unwinding of last weeks light interest for USDCNH downside play for a potential deal - but with little follow through on the initial move USDAsia trader remain in wait and see mode.
 
This morning open is running counter to my pre-trade talk game plan, where I was going to play a bit of risk on early in the week: +USDJPY and - Gold both counter to my long-term views.
 
However, I'm starting to pay attention to the US political landscape not only because the Impeachment process casts a negative light on Trump, but it does the same for Biden. If factoring in Bernie Saunders health issues, its the reason why Wall Street is starting to believe Warren my win the nomination.
 
I'm sympathetic to the weaker dollar, but I only have principal axes to grind into the USDJPY at this stage. However, I'm all over the dollar negative aspect of a Warren popularity gush, but too early to price in me thinks.