The base case scenario was met at G-20 and while we are no worse for wear, let's see what the G-20 hangover brings.
Two positives for market risk sentiment 1) no tariff escalation and 2) trade talks are set to reset which are a harmonious outcome undoubtedly better than the doom and gloom walkout scenarios, but well short of a tight trade policy embrace especially with neither leader carrying a blueprint in hand. So, with trade talks hitting the " reset button" it is the markets base case scenario which is supportive for risk, but without a timeline in place, it will curb trader’s bullish topside ambitions.
With no news reading algorithms to steamroll the markets on Saturday, traders will have a 36-hour cooling off period to quantify their next move. And I would expect the markets to be very orderly on Monday open.
Equity futures positions remain elevated, but this headline won't increase volatility and markets should remain calm. But I would expect systematic strategies that were asymmetric to downside risk would unwind, which will give the market a lift.
Given the comprehensive list of demands from both sides of the table, it not only suggests a bridge too far, but underlying sentiment remains quite bearish in terms of the medium-term outlook for a US-China trade deal as well the global growth outlook.
However, I expect the market to pivot to the possibility of a Middle East shooting war and the countdown to when President Trump directs his trade venom to the eurozone as I’m sure the US administration is only in the early stages of their 'Whack a Mole " trade strategy. Not to mention we have the great Fed debate unfolding. With Friday PCE inflation reading recovering and above expectation, this week's ISM looms large in the 25 or 5o bp great Fed debate.
So, pick ones poison carefully on Monday.