Sentiment Boosted With US/China to Hold Trade Call
Updated: May 8
Risk appetite was given a big boost shortly after the 0800BST/0300EDT European equity cash open, after Bloomberg ran a report saying that top Chinese and US trade negotiators will speak as soon as next week on progress in implementing the phase-one deal after President Donald Trump threatened to “terminate” the agreement if Beijing wasn’t adhering to the terms.
US and European equity bourses and equity bourse futures, plus AUD and NZD all rose to session highs, from which they have gradually advanced as the European session has gone on.
Regarding the call, Chinese Vice Premier Liu He will reportedly be on the call, while the US will be represented by Robert Lighthizer.
The planned phone call will be the first time Liu and Lighthizer speak officially about the agreement since it was signed in January, just before the global coronavirus pandemic hit the world’s two biggest economies and upended global supply chains, noted the Bloomberg report.
The deal called for Liu and Lighthizer to meet every six months, making next week’s call slightly ahead of schedule.
The timing of the call chimes with recent comments from the President; Trump hinted a few days ago that some kind of development was on the horizon when he told reporters at the White House on Wednesday that he’d be able to report in the next week or two if he’s happy with how the trade deal is progressing. (i.e. it looks like he was saying he will wait to see how the call goes before updating on the trade deal.
Given the harsh rhetoric that US and Chinese officials have exchanged over the last few days (regarding China’s handling of the Covid-19 pandemic), the meeting looks set to be tense.
Moreover, given widespread negative feelings towards the Chinese regime amongst voters in the US, the President clearly sees blaming China for the pandemic as a good tactic to try to distract from how bad the economic picture has become.
But it should be noted that US and Chinese officials have been able to make progress on the trade deal front in the past despite a backdrop of hostile exchanges. Remember back towards the end of 2019 when Hong Kong was rioting and the US and China were bickering over that.
And when, right as the Phase One deal started to get closer, the US started to go in even harder on Huawei.
What does the call mean for markets?
The reason why the news of the call boosted markets is this; any constructive dialogue is better than no dialogue.
But finding out how this call went will be a big moment for markets next week; if the call goes well, sentiment will likely be boosted and global equities, crude markets and risk FX will rally.
If the call goes badly, we are likely to see heavy demand for havens such as USD, gold and JPY.
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