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Key market events to watch this week

Trade war on hold  - for now

Asian stocks gained on Monday morning as investors learned that the U.S. and China agreed to drop the tariff threats against each other while they continue to work out an agreement. This was the second round of trade negotiations without clearly defined targets, suggesting that there’s still a long way to go. Today, a trade war may have been averted, but according to the joint statement from both countries, nothing is being guaranteed apart from China promising to increase American imports. It seems that tensions will remain for the foreseeable future and investors will have to live with it; unless the U.S. officially announces that it is imposing tariffs on China, the noise in the background will have little impact on sentiment.

 

Nicolás Maduro wins Venezuelan elections

As was widely anticipated, Nicolás Maduro won another six years in office in Sunday’s elections. The Venezuelan economy, which has been struggling for several years, may enter a deeper crisis if the U.S. and other western countries step up sanctions against the nation. Brent crude, up 0.7% at the time of writing, might benefit further from the increasingly grave outlook for Venezuela, if proposed sanctions result in a  steeper decline in output.

 

FOMC minutes

The dollar climbed to a new 2018 high on Monday, with overall gains of more than 6.3% from its lowest point in February. The U.S. currency has been benefiting mainly from improved economic prospects and higher interest rates. Whether the upward trajectory will resume in the short run, is likely to depend on the FOMC minutes scheduled for release on Wednesday. The Fed has changed its language with respect to inflation and become slightly more bullish, but its latest statement didn’t indicate a faster tightening in monetary policy. Whether the Fed is prepared to fight inflation, or whether it will be more cautious about raising rates too quickly, will be reflected in the minutes. However, with a number of speeches scheduled from Fed officials this week, it will be interesting to hear their thoughts on how oil above $80 may impact policy.

 

Italy’s new government

Italy's new government is likely to be formed within the next few days and provide a new headache for Brussels, since populists will be leading it. Italian borrowing costs rallied sharply over the past several days, as investors sold Italian debt after a leaked draft showed the new coalition’s intentions to request the cancellation of €250bn of Italian government debt. How things go from here depends on whether the new government follows through on its promises, that include a massive spending spree that conflicts with the EU’s budgetary rules, or whether it starts to gradually scale back . 

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