Investors are optimistic that the U.S.-China trade talks this weekend could alleviate the ongoing trade tensions between the two largest economies in the world. While a significant breakthrough is not anticipated at this stage, there is hope that the discussions in Switzerland could help ease the uncertainty plaguing financial markets.
The meeting in Switzerland is highly anticipated and is considered a crucial development following U.S. President Donald Trump’s imposition of tariffs on April 2. The tariffs initiated a period of global trade upheaval and extreme market volatility. The negotiations are seen as critical, given the massive volume of trade at stake, the high tariffs on Chinese exports, and the broader grievances beyond just trade issues.
As of 1810 GMT on Saturday, the talks had adjourned for the day and were scheduled to resume on Sunday. Investors have recently shown optimism that the worst-case trade scenarios may be avoided, leading to an upturn in equities. Despite some positive signals from Trump regarding lower Chinese tariffs and a trade deal with Britain, market participants are cautiously optimistic and are not expecting major breakthroughs during the weekend talks.
There is skepticism that the negotiations will result in an immediate comprehensive agreement. Both the U.S. and China may have an interest in reaching a deal eventually, but there is little rush to do so at this early stage. The market may be overly optimistic about the pace and scope of potential agreements between the two countries.
Trade tensions escalated when the U.S. and China raised tariffs on each other’s imports last month. While Trump’s suggestion of an 80% tariff on Chinese goods hinted at a possible path to resolving the dispute, uncertainties persist. The S&P 500 index has recovered from the initial losses triggered by the tariffs but remains below its previous highs, reflecting ongoing concerns about the impact of trade tensions on businesses and market volatility.
Despite signs of resilience in the economy, concerns about U.S. growth persist amid soft consumer sentiment surveys and market volatility. While the Cboe Volatility Index has eased from its peak in early April, it remains above recent levels, indicating ongoing investor anxiety.
The term median of 17.6 has been relatively stable due to the high cost of establishing short positions to bet on market declines, according to WisdomTree’s Ren. Ren noted that with significant market movements triggered by a single social media post from the president, the expenses associated with setting up such positions can be prohibitive. Equities experienced a surge on April 9 following Trump’s decision to halt certain tariffs for 90 days. However, Matt Gertken from BCA suggested that future market volatility was likely, advising to “sell on strength.”
Gertken highlighted the importance of progress in discussions, indicating that it would help China focus on its domestic economic challenges. Conversely, Andrew Mattock of Matthews Asia cautioned against considering any alternative scenarios, emphasizing the need for win-win outcomes. Claudio Irigoyen of BofA Securities mentioned that negotiating deals with countries like India, Japan, and South Korea might be easier compared to China due to the complexity of the geopolitical and trade relationships with the latter.
Investors expressed concerns about potential negative events that have not been accounted for in the markets. UBS’s Czerwonko pointed out that if discussions in Geneva turn confrontational, it could have unforeseen effects on the market. Investors generally agreed that modest signs of progress would be sufficient, without the need for overly optimistic rhetoric.
(Reporting by Suzanne McGee in Providence, Rhode Island; Additional reporting by Laura Matthews in New York and John Revill in Geneva; Editing by Lewis Krauskopf, Mark Potter, and Matthew Lewis)
