Softer US-China trade rhetoric lifts markets

Softening of Washington and Beijing rhetoric with China’s foreign ministry stating US and China negotiators were maintaining effective communication last week supported equities rebound. 1 The SP 500 rebounded 2.8% and DJI broke out of consolidation triangle with other two main US stock indexes also attempting breakouts after month-long consolidations. The ICE US dollar index turned 1.2%.

All but Nikkei and Hang Seng out of six largest developed market indexes recovered from previous week’s losses. Dow was the gains leader: it rallied 3.0%. Four out of six major currency pairs reversed previous week’s dynamics, and the range of major currency pairs’ weekly fluctuations widened. 3 The Swiss franc was the leader in terms of percentage change: it fell 1.5% against the US dollar.

Central bank policy makers will be in focus this week as Australia sets monetary policy on Tuesday, and New York Fed’s John Williams speaks on Wednesday with Fed chair Jerome Powell on Friday. The US jobs report due on Friday will also be closely watched to gauge a possible impact on Federal Reserve’s next policy move at September meeting. It is projected to show a slight increase in nonfarm payrolls compared to July.