Risk assets have traded strongly this week. Expectations are growing around a potential US/China trade deal which could put an end the damaging, year-long trade war. The war soured world growth all throughout 2018.
US and Chinese officials are due to begin a further round of meetings in Washington on Wednesday following last week’s meetings in Beijing.
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According to sources who spoke to the Financial Times this week, the two sides are drawing ever closer to agreeing on a deal following four months of negotiations. Reportedly, the two outstanding issues hindering the deal are what will happen to current US tariffs on Chinese goods (which China want to be removed) and what the specifics are of an enforcement clause. The US is demanding the clause in order to ensure that China sticks to the terms of any deal.
US Seeking Assurances Over Compliance
The US wants to ensure that China is fully compliant with the terms of a trade deal from day one. China also wants to see the US immediately remove the current $250 billion of tariffs on Chinese goods. However, the US reportedly wants to keep some of them in place, to ensure that China adheres to the terms of the deal.
The current deal would essentially result in a higher level of Chinese purchases of US goods. This would be in order to reduce the US’s trade deficit with China, which Trump has long warned against. The deal is also thought to include some assurances from China to protect against the forced transfer of technology from US companies operating there. And this is what the US calls the theft of intellectual property.
US Officials Remain Positive
The US Trade Representative Robert Lighthizer is also demanding the right for the US to apply unilateral tariffs. These would be as a punitive measure in the event that China violates any part of the agreement. They would also include a guarantee from China that it cannot retaliate with similar tariffs in such circumstances.
While tensions clearly remain, the Executive Vice President for international affairs at the US Chamber of Commerce, Myron Brilliant, told reporters:
“We’re getting into the end-game stage… Ninety percent of the deal is done, but the last 10 percent is the hardest part, it’s the trickiest part and it will require trade-offs on both sides”.
Potential Trump/Xi Jinping Summit
If meetings this week are successful, we could see the scheduling of a summit between Trump and Xi Jinping to sign and deliver an agreement. If issues remain, we could see the current talks extended further. This would likely be until the next G20 meeting at the end of June. For now, though, traders are remaining optimistic and the focus is on a deal being made, which is keeping markets supported.
After breaking above the 2860.11 level resistance, the SPX500 has since retested the level which has held as support. It is now keeping focus on further upside. In terms of next levels to watch, the main upside objective is a retest of the all-time highs at 2940.69. If we see any retracement lower from here, the next support zones to watch are the 2852.65 level and the 2829.58 level below.