G20 Battle Lines Leak, Data First

Mixed and contrasting leaks regarding Saturday's US-China meeting at the G20 hint at a ceasefire but also at disaster. The Australian dollar was the top performer Thursday while the pound lagged. UK Q1 GDP was unrevised at 1.8% and Ezone flash CPI came in at 1.2%, while core rose to 1.1% from 0.8%. Canadian GDP and the US PCE report will be market movers ahead of month-end. A new trade was issued with 2 charts & 3 key notes, updating last week's trade. Key data coming up from the US and Canada (see below).

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The South China Morning Post reported Thursday that a precondition of Xi accepting talks with Trump was that the US would rule out any additional tariffs during a new round of negotiations, with a tentative timeline of six months. That would undoubtedly be a positive outcome at this stage and might lead to an initial spike in risk assets. At the same time, it would cut the Fed's appetite for easing so the optimism could be short lived. Such a scenario would lead to a rally in the dollar and gold may be vulnerable.

A separate report from the WSJ said another precondition was removing a blockade on US firms selling technology to Huawei. That would be a step back for Trump and something tougher to agree with. The same report also said Beijing wants the US to lift all punitive tariffs and drop efforts to get China to buy more US products than were agreed in December.

The reports were accompanied by the usual denials, along with others that said China won't give into demands to change its laws on intellectual property.

The most-likely outcome is a neutral-positive because these matters are routinely agreed on ahead of time, yet at at this stage there lacks any guarantees and jitters will be high heading into the weekend, with more leaks likely to come.

Ashraf's Tweet on indices here.

Looking ahead, North American traders will have plenty to digest on Friday aside from the G20. The US PCE report is the penultimate look at the Fed's preferred inflation measure ahead of the July 31 FOMC. San Francisco Fed President Daly highlighted inflation as a key concern again on Thursday but prices were adjusted higher in the Q1 GDP print. The deflator and core measures are both expected at 1.5% y/y and a 0.2-0.3 pp miss to the upside would raise instant questions about Fed cuts.

Also released at 1230 GMT (13:30 London) will be the Canadian April GDP report. It's expected at 0.2% but risks are to the upside after a strong wholesale trade report earlier in the week. Another strong number would solidify the CAD bid and the belief that the BOC won't follow other major central banks with cuts, at least not any time soon.

Note that Monday is a holiday in Canada and that Friday is the final trading day of the month and the quarter. Aside from G20 positioning, fund rebalancing flows will be in play. The outsized rally in US stocks means the dollar is most likely to come under pressure, especially into the London fix.