The US-China trade truce was telegraphed in the Chinese media muting its impact, notes Adam Button.

Global stock Indices rallied aggressively after the United States delayed the Administration’s threat to place an additional $300 billion in tariffs on China, while U.S. dollar shorts were partly unwound with the help of quarter-end portfolio rebalancing, extending into metals and energy. 

Leaks last week spoiled the surprise of a US-China trade truce and that stunted the early market move. The Canadian dollar was the top performer in June while the U.S. dollar lagged. CFTC positioning data showed a rush out of Canadian dollar shorts. Canada is on holiday today. 

Thursday's South China Morning Post report on the Trump-Xi meeting proved to be entirely accurate. It included the two important parts of the deal: 1) That Trump won't hit China with any additional tariffs while they negotiate and, 2) That a blockade on sending U.S. technology to Huawei will be lifted.

At the market open risk trades popped but they quickly faded afterwards, leaving yen weakness as the only notable change. It's obviously good news for the global economy that the meeting didn't end in a blowup but there was some hope for a firm timeline for no new tariffs. The fuzzy extension means markets will remain one tweet away from a trade war flare up.

Perhaps more importantly, the Federal Reserve is back in play. The Fed’s Open Markets Committee (FOMC) is already committed to the July cut but it could quickly be re-framed as an insurance cut and that could cause a re-think on the three additional cuts that are priced in over the coming year.

What could put the Fed back on the path to deeper cuts would be more weakness in economic data. The June U.S. regional manufacturing surveys have been dismal so far and on Monday the ISM reports on its national manufacturing survey. The economist consensus is 51.0 but after the Chicago PMI tumbled to 49.7 from 54.2 on Friday, the market will be braced for a sub-50 reading.

Also note that Canada is on holiday Monday and that could leave the suddenly-sizzling CAD vulnerable to illiquidity.

CFTC Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR -56K vs -52K prior GBP -59K vs -53K prior JPY -10K vs -17K prior CHF -16K vs -15K prior CAD -15K vs -38K prior AUD -66K vs -65K prior NZD -24K vs -24K prior
The relentless march of upbeat Canadian economic news finally forced shorts out as USD/CAD hit a seven-month low. The momentum continued on Friday after a strong GDP print and an upbeat Bank of Canada business survey. Also note that Canada is on holiday Monday and that could leave the suddenly-sizzling CAD vulnerable to illiquidity.