Friday closing wrap: market sentiment improved on possible Trump/Xi trade war truce - TDS

In a market wrap: analysts at TD Securities, (TDS), noted that market sentiment improved on Friday on reports that the US and China are working towards a Trump/Xi meeting in November. 

Key Quotes:

"Equities (SPX: 0.4%, TSX: 0.6%) rallied into the weekend while fixed income was mixed. 

Treasuries were little changed to outperform Canadian rates, which bear-flattened on a 3bp selloff in 2s on strong CPI data.

DXY (-0.5%) posted its largest drop since late July amid a broad selloff. AUD (+0.8%) led G10 FX while CAD (+0.7%) traded higher on CPI and EUR (+0.6%) saw its third consecutive gain to close above 1.14.

The calendar is quite over the coming week until Fed Chair Powell's speech at Jackson Hole on Friday.

What We're Watching in Markets
"Trade talk comes back to the fore with the US & China slated to rekindle negotiations next week. Press reports indicate that currency dynamics could also be on the agenda. We are sceptical that much will come out of this but with the US TWI having unwound much of the weakness observed in 2017 in a few short months, it pays to be prudent."

"A hot headline CPI print has emboldened the hawks punting for a September BoC hike despite unchanged/stable core inflation measures. USD/CAD's drop remains within the well defined 1.30/32 range, however, and we continue to think that EUR/CAD topside (towards 1.52) may be appealing as we get clarity on activity data and a Poloz appearance at Jackson Hole next week."

"USTs will focus on Jackson Hole, but we believe July FOMC minutes could be more interesting. 5s30s should continue flattening, but talk of ending balance sheet runoff could steepen the curve."

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