Back to the table?

It is not clear in what context that phone call was made. Indeed, a spokesperson for the Chinese Foreign Ministry indicated he was “not aware of” the call.

However, does it matter if the call happened?  The fact that President Trump is striking a more conciliatory tone is what’s essential for risk market sentiment.

It’s possible both sides needed to push the trade envelope to unbearable proportions, and maybe that’s what was required all along for cooler heads to prevail

We never know what backchannel discussions or if private concessions were made, but there is no coincidence this apparent de-escalation is occurring at G7. I don’t believe in coincidences when it comes to market price action, so I think something was discussed at G7 to make Trump happier.

Global leaders don’t necessarily side with China, but they are opposed at all costs to the scorched earth policy the US and China have embarked on which will decimate the global economy.

Oil Markets

Oil traders have been riding the hope roller coaster overnight. After a bombastic Trade war infused start to the G-7 summit a sliver of optimism has leaked into the US-China discussion. Despite the latest contentious escalation, both sides still want to get back to the table and negotiate calmly.

Much was being made over whether U.S. negotiators received a call from China at the highest levels or not. With the only source that has a consistent and accurate message of the Chinese stance in recent days – Global Times – so after they said there were no trade talks in past few days, oil traders may have been more prone to fade the hope trade.

Iran back in the oil picture

With no shortage of stories competing for attention, a possible thawing in U.S. and Iran tensions has traders concerned that oil prices could plummet $ 5-10

Iranian oil tankers have been quietly offloading their supply into Chinese ports, according to ship-tracking data, despite U.S. sanctions on crude from the Islamic Republic. Moreover, it’s estimated that between 12 million to 15 million barrels are stored in Chinese bunkers not to mention the millions of U.S. barrels currently sitting in Chinese ports which could be subject to the new tariff making them less desirable for Chinese refineries.

If the U.S. does lift sanctions on Iran or even if China defies the US Iran oil sanctions in a trade war retaliation, prices will topple.

With the market in a defensive trade war posture, oil traders have transitioned from half to full guard overnight sending oil prices tumbling lower.

Gold Markets

Gold traders are awaiting the next significant shift in the trade war narrative or even President Trumps next mood swing.

Gold prices eased back to below the technically, and fundamentally significant USD1,534/oz level as improving risk sentiment, recovering equity markets and a stronger USD encouraged profit-taking and some positing squaring.

Why has the bullish edged dulled on gold this week?

With the Pboc tempering the Yuan movements and Vice Premier Liu He took to the airwaves claiming he wants peaceful trade dialogue with the US, regional risk sentiment has improved

Moreover, with President Trump striking a more conciliatory tone, global risk assets are in a much friendlier place to start the week.

Gold and Trade war

Trade news will be the primary mover for gold prices but with the US President speaking out of both sides of his mouth. The US “will probably make a deal with China”. However, he also said that the trade war with China needed to be fought, so there seems little sign of any real détente.

However, if trade tensions remain elevated, gold can count on this issue as being flat out supportive.

Although the golden brick road to $ 1600 looks like a mud-brick road this morning, the overall bullish buy on dip narrative remains in place until there are definitive signs of progress in the trade war front.

This article was written by Stephen Innes, Managing Partner at VM markets LLC