By Han Tan, Market Analyst at FXTM
Risk-on sentiment is coursing through Asian markets, amid news reports that the US is considering lifting some of the tariffs currently imposed on $112 bln worth of Chinese goods. Asian stocks and currencies are mostly higher, while the Japanese Yen has weakened 0.17% towards the 109 psychological level versus the US Dollar and Gold has eased around 0.3% to trade closer towards the $1504 mark.
Global equities have enjoyed a double-boost of late, with the ongoing US earnings season as well as optimism surrounding US-China trade talks, although it remains to be seen whether such buying momentum can be sustained.
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If the US does roll back existing tariffs, the positive spill-over effect will extend beyond financial markets, as such a move would alleviate the downwards pressures on global trade conditions as well.
Global outlook contingent on US-China deal
Until that keenly awaited “phase one” trade agreement is reached between the world’s two largest economies, investors may continue keeping their exposure to riskier assets in check.
Investors are still keenly aware of the pressures that heightened trade tensions have exerted on the global economy, evidenced by the steady stream of contracting manufacturing PMI readings out of the US, Europe and Asia.
In order to preserve hopes of a global economic rebound, investors must be able to at least rule out the threat of more tariffs being imposed on world trade going into 2020, although it should be noted that such a risk has subsided in recent weeks.
Oil boosted by risk-on mode, softer Dollar
Brent futures climbed to their highest level in six weeks and are closing in on the 200-day moving average, having breached the $62.50/bbl mark for the first time since September. The softer Dollar environment coupled with the risk-on mood, have allowed prices to pare recent losses, even as Brent remains more than 12% below its year-to-date high of $71.52/bbl on April 25.
If some of the existing tariffs were to be dismantled, that should restore some measure of global demand for Oil as economic and trade conditions recover. A significant de-escalation in US-China trade tensions would help lift some of the gloom surrounding Oil’s outlook, while allowing OPEC+ to back away from having to trigger deeper supply cuts.
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