US-China Trade Talks To Resume

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Trump Optimistic Over Deal

US and Chinese officials are due to meet later this week for the next round of trade talks. There has been a great deal of speculation over recent weeks regarding the potential for a partial trade deal.

Reports began circling in the summer regarding the notion of an “interim” trade deal, as a stepping stone towards a fuller deal later on.

The interim deal is based around the scaling back of US tariffs on Chinese goods in exchange for China making concessions on agricultural purchases and intellectual property.

Commentary on the ongoing trade talks has been largely positive. Trump told reporters that a deal with China could come sooner than people think.

Speaking on Friday, Trump told reporters:

“We’ve had good moments with China. We’ve had bad moments with China. Right now, we’re in a very important stage in terms of possibly making a deal. But what we’re doing is we’re negotiating a very tough deal. If the deal is not going to be 100% for us, then we’re not going to make it.”

China to Reduce Scope of Discussions

However, over the weekend, the latest commentary from Chinese officials has not been as encouraging.

Reports highlight that Chinese officials have reduced the scope of the issues they are willing to negotiate.

According to reports, China is not willing to discuss commitments on industrial policy or government subsidies, both of which have been key issues for the US.

Investor Uncertainty Returns

Uncertainty ahead of the trade talks is dampening risk sentiment for now.

If the two sides are unable to show any progress at the upcoming meetings this week, we could see a great period of risk aversion developing.

Recent data has shown the ongoing damage to the US economy from Trump’s trade war. US manufacturing hit ten-year lows over September while the NFPs showed the US economy adding just 136k jobs last month.

Fed to Ease Further?

With the US economy having visibly slowed, the Fed is likely to ease further this year.

Although at the last meeting there was an increased number of policymakers opposed to a rate cut, conditions have weakened materially since then. The market pricing is now suggesting a rate cut by December, though October pricing is also rising now.

The trade talks have been the key issue this year, highlighted by a number of central banks, posing a threat to the global economy.

If the US and China are not able to deliver a positive result this week this will keep the pressure on the Fed, keeping the outlook bearish for USD.

Technical Perspective

spx500

The SPX500 has posted a solid recovery following last week’s losses with price bouncing off the 2878 support level to trade back above the 2932 level.

In line with the longer-term trend, focus remains on a further move higher. With the bullish trend line from summer lows still intact, the resistance level at 3021.26 should be tested again in the coming sessions especially if we see positive news from US-China trade talks.

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