US Close – G20 Optimism, Oil, Gold, Bitcoin

After a few days of modest declines, US stocks are higher as trade optimism is starting to get priced in for this weekend’s events at the G20 summit in Japan.  The US- China trade war has dragged on for over a year and it seems both sides are politically motivated to wrap up a final agreement by the Fall.  Ahead of the highly anticipated Saturday meeting between Trump and Xi, both sides are trying to downplay expectations. 

Markets should start to expect Trump to offer some concessions regarding Huawei and to delay of the next round of tariffs on additional $300 billion worth of Chinese imports.  In return, Trump is expecting Beijing to show some purchases, structural changes, changes IP law and market access.  Talks fell apart last month when China balked at changing their law, this should not be an issue as what Xi agrees upon will have the full support of the Chinese government. 

This appears to be a critical juncture for both sides and we should some red lines moved on both sides.  If they can’t iron out any concessions this weekend, markets will be in for a rude awakening. 

Oil

Crude prices are getting pulled in every direction ahead of a couple key meetings at this weekend’s G20 summit in Osaka.  Investors want to know if Trump and Xi can revive trade talks and if President Putin will signal to Saudi Arabia’s Mohammed Bin Salman that Russia will stay in the OPEC + production cut deal. 

Expectations going into the weekend are looking cautiously optimistic for oil higher prices.  While some of the rhetoric on Chinese demands on Huawei and Trump’s unpredictability have many skeptical that trade talks will blow up, both sides have political motivations to wrap up a trade deal by the fall and that would require a resumption of a constructive dialogue.  Russia is likely to play ball as they seek to secure further investment and trade deals with the Saudis.  

Gold

Gold continues to come off the six-year high made earlier in the week as markets await to see if President Trump and his Chinese counterpart will resume constructive trade talks with the hopes of identify a timeline to secure a final deal.  Today, both sides delivered some posturing, but the base case remains China and US will agree on fresh trade truce with both sides delivering some modest concessions to keep talks going.  Any constructive pact reached over the weekend will be met with skepticism that we will see a prolonged battle that will continue to damage sentiment globally.

Gold should be supported on risks that this next round of trade negotiations can blow up any point even after we see a reset of talks.  Softer global growth and additional stimulus from the larger central banks should also provide the yellow metal with support.  

Bitcoin

The cryptocurrency world was once again reminded of the violent swings we can see with Bitcoin.  After a meteoric rise over the past two-weeks, the digital currency sold off as short positions approached record territory and after Coinbase’s brief outage.  Further downward pressure could see the psychological $10,000 level targeted.  The bull case still remains intact, but we could see investors become skeptical about jumping back into Bitcoin volatility slows down.