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What’s driving the risk mood to start the new week?

It hardly is surprising that US-China trade tensions is still the main driver of markets as we begin the new week. The issue of tariffs continues to be an enigma and that is leading to concerns over a deal not being signed off before the year ends.

On the one hand, you get Trump saying that trade talks with China are moving along “very nicely” but then you also get Navarro remarking that “there is no agreement to rollback any existing tariffs” – something that China is seemingly persistent on.

Both sides appear to be squeezing as much as they can out of one another in this “Phase One” deal and the fear is that either one of them may overstep their boundaries.

With so much (or should I say so little in terms of significance) already anticipated in this “Phase One” deal, I would argue that the risk from hereon skews much more towards the downside as talks have the potential to break down.

If a deal does happen, that’s great but that is the baseline and expected outcome now. If talks break down, the setback for risk assets would be much more profound.

Besides US-China trade talks, escalating tensions and violence in the Hong Kong protests are also playing a role in softening the risk mood so far today.

The Hang Seng index is down by 2.8% currently and the unrest in the city is weighing on investor sentiment as we begin the week.

As such, the likes of gold and the yen are still holding firmer at the moment but just be wary of more potential headlines that could shift the risk mood later in the week.

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