Since the trade talks between the US and China broke down in May, the G20 summit has been seen as a key date in the diary. The next time the paths of Presidents Trump and Xi would naturally cross would give them an opportunity to get round a table again in the hope that the two would be able to come to some agreement that would avert an all-out trade war which would risk plunging the global economy into recession. It is mutually beneficial for both countries to come to an agreement, but Saturday’s meeting is still highly uncertain of a productive outcome. Steve Mnuchin recently suggested there was around 90% agreement, something that was also apparently the case when the talks broke down last time. There is a cautious consolidation that has overcome major markets in recent days as traders have looked towards the meeting at the G20 this weekend. There could be a significant impact on markets should an agreement (or traction towards an agreement) be seen. The knock on impact on the Fed (who would not be so compelled to cut rates) would have an impact across asset classes. Yields would jump, the dollar would regain lost ground and equities (which have jumped on the promise of looser Fed monetary policy) could slip back. Hence consolidation continues today. Aside from the G20, watch out for Eurozone inflation this morning. The clamour for a more dovish ECB would grow harder to ignore if inflation were to drop back further today.
Wall Street closed mixed last night with the Dow 10 ticks lower whilst the S&P 500 was higher by +0.4% at 2925. US futures are all but flat, and whilst Asian markets have been cautiously lower (Nikkei -0.5% and Shanghai Composite -0.9%), the Europeans are taking the lead from the US, with FTSE futures and DAX futures around the flat line. In forex, there is a cautious consolidation look to the majors, with mild outperformance of JPY and CHF, but with little real direction. NZD is also holding its recovery. This slight air of caution is also reflected in commodities, with gold +$3 higher and oil off by half a percent.
There is a big focus on inflation for the economic calendar today. However, first up is a final reading of Q1 UK GDP at 0930BST which is not expected to see any revision from the +0.5% (+0.5% prior reading, +0.2% in Q4 2018). The UK Current Account deficit is also at 0930BST and is expected to show a deterioration to -£32.0bn in Q1 (from -£23.7bn in Q4 2018) which would be the biggest quarterly deficit since Q2 2016. Flash Eurozone inflation for June is at 1000BST which is expected to see headline HICP remaining at +1.2% (+1.2% in May) with core HICP improving to +1.0% (from +0.8% in May). Into the US session the Fed’s preferred inflation gauge, US core PCE for May is at 1330BST and is expected to stay at +1.6% (+1.6% in April). The final reading of Michigan Sentiment is at 1500BST which is expected to be revised mildly higher to 98.0 (from 97.9). The University of Michigan data will be of added interest after the Conference Board’s Consumer Confidence showed a big miss earlier in the week.
Chart of the Day – NZD/USD
The Kiwi has had a remarkable recovery rally in the past couple of weeks. This move has kept going in the wake of the RBNZ monetary policy meeting, but now the rebound has reached a key crossroads again. For the past 12 months the kiwi has consistently seen major turning points in the pivot band $0.6685/$0.6720. A breakout above $0.6685 for a two month high and the bulls look increasingly well positioned now. The RSI in the high 60s is its st