At the G20 meeting in Osaka, the US and China agreed to a trade war truce, whereby no additional tariffs would be levied, and to continue talks, which would eventually result in a cancellation of all tariffs. Further, China made the concession to potentially buy more US farm goods, while US made the concession to potentially ease restrictions on selling US technology parts to Huawei.

The apparent truce could cause the temporary relief in US stock market, emerging stock markets, commodities and currencies such as Australian dollar. The question is whether it will impact the expected Fed monetary policy, or the bond market. The increase in interest rates could have the negative effect on stock market, and haven assets such as gold.

Given that no real deal was reached, which would remove the existing tariffs, the bond market is likely to continue to price the economic slowdown, which will continue to be a negative for the US dollar, and broadly the stock market, and positive for gold.

More broadly, it will be difficult to implement the Huawei concession, given the US national security concerns, which also makes it less likely that the China’s purchase of US farm goods concession will be reciprocally implemented as well.  Thus, the US-China trade war is likely to intensify, and it’s unlikely that the talks would lead to the cancellation of all tariffs.

Things to immediately look for: 1) US bond market reaction (the expected Fed policy), and 2) the rhetoric about the Huawei concession, and the consequent implementation.