Reset of US-China talks may lift risk appetite

Markets may breathe a sigh of relief after President Donald Trump and President Xi Jinping decided to resume trade negotiations after a six-week stalemate.

SINGAPORE: Markets may breathe a sigh of relief after President Donald Trump and President Xi Jinping decided to resume trade negotiations after a six-week stalemate, with the U.S. agreeing to a temporary freeze on further tariffs on Chinese goods.

Trump told reporters he wouldn’t put new duties on China for the "time being” after Xi’s administration agreed to buy a "tremendous” amount of agricultural products. 

Trump also said that he’ll allow Huawei Technologies Co. to buy some products from U.S. suppliers after the Commerce Department last month blacklisted the company for national security reasons.

Recent concerns about global trade have prompted investors to bet on central-bank easing and pile into haven assets. Here is how markets will likely react when they open on Monday, according to strategists and investors:

Mansoor Mohi-uddin, senior macro strategist at NatWest Markets in Singapore:

"Investor sentiment is set to be buoyed in the week ahead by a truce in the U.S.-China trade war.”

"Financial markets are unlikely to significantly reduce their expectations for Federal Reserve rate cuts despite global trade tensions easing. Thus risk assets -- stocks, commodities and emerging markets -- are set to rally while the safe-haven dollar, yen and Swiss franc underperform.”

Stephen Innes, managing partner at Vanguard Markets in Bangkok:

The "reset button” being hit on trade talks was the markets’ base-case scenario, and this is supportive for risk, but the lack of a timeline for progress may cap "bullish topside ambitions.”

"With no news reading algorithms to steamroll the markets on Saturday, traders will have a 36-hour cooling off period to quantify their next move. And I would expect the markets to be very orderly on Monday open.”

The extensive lists of demands from both sides may be "a bridge too far.”
    
"Underlying sentiment remains quite bearish in terms of the medium-term outlook for a U.S.-China trade deal as well the global growth outlook.”

Raymond Yeung, chief China economist at ANZ in Hong Kong:

"Today’s outcome, similar to last December’s, still does not convince us that the trade tensions have been resolved. China and the US have not made any progress on key issues, namely, intellectual property rights and technology transfer.

    Trump’s softer stance seems to be driven by US corporate interests, as billion dollar contracts for US farmers and Huawei suppliers are involved.
  
Today’s outcome suggests that future negotiations could be characterised by US stepping back in exchange for China’s purchases. But as China has said it is prepared for a ‘Long March’, the US needs to compromise further to reach a real deal before the next presidential election.”

Chris Weston, head of research at Pepperstone Financial in Melbourne:

   "I can’t see this meeting doing risk assets any harm, but there is still a lot of work to do to convince central banks they don’t need to act to keep the economic expansion in check.”
   
 "A few weak shorts may look to close out on Monday” given the tariff reprieve, prospects for negotiations to restart and that both sides "actually appear more united than expected.”  - Bloomberg