US equities climbed to a new record high in a decisive move at Monday opening, breaking through 3400 level, sending relief waves to the markets which extended to the Tuesday session. Greenback managed to defend 93.00 level on Monday but remains under slight pressure today. As I argued in my Monday post, further downside may be limited in USD as two key conditions for the downward trend to hold are gradually waning.

China and US trade representatives cleared doubts that brief economic recession or controversies over a number of issues undermined implementation of the first phase of the deal, announcing that China will continue to make purchases. Major update from the high-level officials on the status of trade cooperation is a shot of optimism for risky assets as it automatically downplays severity of existing causes of tensions, such as controversies over the status of Hong Kong, claims regarding how China handled Covid-19 outbreak and disagreements about its origin and US pressure on Chinese tech firms.

Nevertheless, China has so far bought much less than it promised in 2020. The announced volume of purchases is $77 billion, of which almost half is agricultural goods. In the first half of 2020, China bought agricultural products for a total of 7.274 billion, meeting the norm for import of energy products by only 5%. But in terms of market sentiment, what matters is the willingness to continue cooperation.

Oil quotes continue to rise due to temporary disruptions in production in the Gulf of Mexico due to Hurricane Marco and Tropical Storm Laura. According to some reports, offshore oil production in the Gulf decreased by 82% or 1.5 million bpd. Natural gas production decreased by 57%. The main positive signal for prices was decline in refinery activity on Texas coastline. According to some reports, due to shutdown of refining capacities, volume of refining could drop by 1 million bbl/d. Although US commercial oil inventories are sufficient to compensate for the decline in refinery activity so we may see some anticipated drawdown in inventories from the API report which is due today.

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