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WEEKEND RISK: Key US/China talks on Saturday



Weekend risk: US/China meet for crucial talks


The market heads into the weekend with its breath held, as the US and China meeting for crucial talks. 


The talks, which will occur via videoconference, were originally scheduled before the pandemic as a routine check up on the implementation of the Phase One Trade Deal the two sides signed back in January. 


However, since the onset of the pandemic, relations have soured, with tensions between the US and China rising on multiple fronts. 


According to sources, China will bring up numerous gripes that it has with the US, mainly focusing on the increased pressure the US has been placing on international Chinese companies including Huawei, TikTok and WeChat. 


The US maintains that these companies present a national security threat, and conduct espionage/data collection and IP theft on behalf on the Chinese government (these claims are almost certainly true!)


China will also reportedly urge the US to stop probes into whether or not the PBoC is devaluing the Yuan (CNY). However, (and this bodes well for this weekend’s talks) China will reportedly not raise more sensitive geopolitical and diplomatic issues with the US. 


For context, China and the US are currently clashing over; the formers implementation of national security laws in Hong Kong (which the US says is a clamp down on freedoms of speech), over China’s territorial claims in the South China Sea, over US ties with Taiwan (a sworn enemy of mainland China). The two sides have also been undermining each other ability to conduct diplomacy in each other’s countries (remember the closures of the Chinese Houston consulate and the Chinese response). 


However, the US may want to bring up these issues, in which case China will likely have to engage. 


From a market perspective, what we care about is the tone of the meeting; 


As in, if talks are framed as constructive and further talks are scheduled, this will be taken as a positive for market sentiment (stocks, crude, risk FX higher, bonds, haven FX lower).


If talks go badly, this will be a risk appetite negative (stocks, crude, risk FX lower, haven FX, bonds higher). 


Either way, keep an eye on the weekend headlines. They should be interesting! 

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