By Suzanne McGee
Investors are hopeful that US-China trade talks this weekend will cool a trade war between the world’s two largest economies and dispel some of the uncertainty clouding financial markets, though few expect a major breakthrough just yet.
The highly anticipated meeting in Switzerland could mark one of the biggest developments since US President Donald Trump launched sweeping tariffs on April 2, which threw the global trade landscape into chaos and set off extreme market volatility.
“This is the mother of all negotiations,” said Alejo Czerwonko, chief investment officer, Emerging Markets Americas, at UBS.
“There are hundreds of billions of dollars of trade on the line, a 145 percent tariff on Chinese exports that amounts to some sort of de facto embargo and grievances that extend well beyond trade.”
The US-China trade talks in Geneva had adjourned for the day and were set to continue on Sunday, a source familiar with the discussions told Reuters.
US President Donald Trump said late on Saturday that the two countries had negotiated “a total reset … in a friendly, but constructive, manner.”
He added that “great progress” was made, without elaborating.
Recently, investors have expressed optimism that the worst-case trade scenarios would not come to pass, and pointed to signs of de-escalation between the US and China as a reason behind a rebound in equities.
But despite comments by Trump ahead of the talks suggesting a lower level of Chinese tariffs, and a trade deal announced on Thursday between the US and Britain, many market participants said they were not expecting major breakthroughs this weekend.
Rather, they confined themselves to hoping that nothing goes wrong when the two sides come face-to-face for the first formal round of what may be protracted negotiations.
“We’re still doubtful that direct US-China negotiations will lead to a ‘grand compromise’,” said Thierry Wizman, global FX and rates strategist at Macquarie, in a note to clients.
Pact seen unlikely
Both the US and China may want, or even need, to reach a deal, said Liqian Ren, director of Modern Alpha at WisdomTree Asset Management. At this early stage, however, there seems to be little incentive to do so rapidly, she added.
“Each still wants to see how the other side copes with negative headwinds,” Ren said.
“Right now, the market is maybe a little bit too optimistic in terms of what China and the US can achieve and how fast events will move.”
Trade tensions between the two nations escalated last month, when the US boosted tariffs on all Chinese imports to a whopping 145 percent, and China then raised levies on US imports to 125 percent.
On Friday, comments by Trump that an 80 percent tariff on Chinese goods “seems right” – making his first suggestion of a specific alternative to the 145 percent levies – created some hope of progress toward resolving the dispute.
The benchmark S&P 500 stock index has already erased the steep losses seen in the immediate aftermath of the tariffs announcement on April 2, although businesses continue to warn investors of their impact, and the uncertainty they create, in earnings-related comments.
The S&P 500 remains down about 8 percent from its February all-time high and roughly 4 percent for the year.
