Buying The Rumor

The Dow Jones and S&P500 closed higher, tracking positive sentiment from a benign CPI report and a US-China trade deal agreement. Bitcoin also experienced a rally, and the Australian and New Zealand dollars strengthened amid progress on trade issues. US Treasury Secretary Scott Bessent indicated that additional tariffs on Chinese imports are now unlikely. Crucial trade negotiations are expected on Thursday when Presidents Trump and Xi will meet to finalize the agreement. Bessent anticipates China will ease rare earth export controls and resume soybean purchases, while the US will maintain its restrictions on advanced technology exports. The leaders are also slated to discuss a potential global peace plan for Ukraine, a development that would significantly shift geopolitical dynamics. If China concedes on rare earths and Ukraine without US concessions, it could be perceived as a capitulation in market terms. Separately, Trump announced a 10% tariff on Canadian imports in response to an Ontario advertisement, terminating prior trade talks. This retaliatory measure has led to the Canadian dollar underperforming. In Argentina, President Javier Milei's party secured a strong showing in midterm elections, supporting his laissez-faire policies and likely solidifying US financial aid. This aligns with the US strategy of promoting the dollar's dominance in its sphere of influence. Meanwhile, China is actively internationalizing the Renminbi by converting dollar-denominated loans into CNY for countries like Kenya and Ethiopia. This strategy, despite involving debt haircuts, aims to diminish the dollar's global standing and thereby reduce US leverage through sanctions. China's lower interest rates make borrowing in CNY more attractive. With an upcoming FOMC meeting, the administration is expected to pressure the Federal Reserve to lower dollar financing costs, prioritizing this over inflation concerns in the ongoing US-China geopolitical competition.