Risk Assets Rally On US/China Trade Deal Optimism

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Oil traders have been treated to an interesting start to the week as crude traded up to fresh 2019 highs. The driver behind the move is the increased sense of optimism around ongoing US/China trade talks.

Following a further round of negotiations in Beijing last week, officials from both sides are due to meet again this week in Washington. While little has been disclosed in terms of the details of last week’s talks, both sides have praised the progress being made and pledged to continue to strive towards a deal.

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Trump Praises Trade Talks Progress

Speaking at a White House conference last week, Trump said the US is now closer than ever to “having a real trade deal”. He added that, although talks were “very complicated,” he would be “honored” to remove tariffs on Chinese goods if a deal can be made.

Trump also reiterated recent comments regarding the potential to extend the current March 1st deadline while both sides remain committed to progress.

Traders Show Relief

The market has responded warmly to Trump’s comments in light of his previous message, which was that he stood ready to increase tariffs if they had failed to reach a deal.

The US currently has $200 billion of Chinese goods under tariffs. And, prior to his comments recently, Trump had warned that this levy would be increased to 25% after March 1st if there was no deal made.

Trump had also warned, bluffing or not, that he was prepared to apply tariffs to the remaining $267 billion of Chinese goods entering the US each year.

However, both sides are actively pursuing an agreeable outcome. Talks are rolling forward into another set of meetings this week, so it looks likely that we will see the March 1st deadline extended. This will give both sides (and the market) some more breathing room.

The relief among traders has been palpable. Both equities and oil prices climbed higher, as risk assets are seeing better demand. Indeed, oil prices traded up to fresh 2019 highs at the start of the session. However, they pulled back slightly on weaker than expected Chinese auto data.

Risks Remain

Interestingly, gold prices have remained firm. This suggests that many players prefer to stay hedged in the market given the uncertainty around the talks.

After all, there is the still very real potential that talks could collapse at any moment given the volatile nature of both leaders. However, for now, traders are enjoying the more cooperative tone and the hope that the two sides can reach an agreement.

Technical Perspective

gold

Gold prices are now once again challenging resistance at the 1325.96 level, which was the January high. The market seems very supported here. And, if we can break above this level, there is a clear run up to the next key structural zone at 1358.27 – 1365.53. Alternatively, we will need to see a break of the rising trend line and structural support at the 1298.29 level to alleviate the near-term bullish bias.

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