U.S.-China renewed trade talks cause risk-on market’s sentiment.
As a result of an 80-minutes face-to-face meeting between the U.S. President Donald Trump and China President Xi Jingpin in the sideline of G20 summit in Osaka, Japan, trade talks are ‘back on track’. Although the same story happened in Argentina in November, and Trump announced ‘the biggest deal ever’, but talks were broke out in May, financial markets reacted with weekend gaps on major assets charts including currencies, commodities and stock indices. The risk-on sentiment was noticed for global equities, high-yield assets and emerging markets currencies as investors’ risk-on sentiment was supported by optimistic statements of the two largest economies’ leaders after the meeting.
Traders and investors in the foreign exchange market were watching the meeting closely as stakes were high in terms of possible trade war escalation and worsening prospects for the global economy. Several rumours were spread last week, including ultra-positive scenarios of a trade deal agreed right this weekend. The outcome of the summit caused deja-vu as Trump had similar announcements last November, which did not come true yet. However, the general market’s reaction was positive as the U.S. dollar gapped on the upside, equities soared and safe-haven gold price dropped on Monday market open.
"We had a very good meeting with President Xi of China, excellent, I would say excellent, as good as it was going to be," Trump in a press conference. "We discussed a lot of things and we're right back on track and we'll see what happens." As one of the steps forward in tough negotiations, Trump cancelled the ban for China’s Huawei tech giant, releasing the trade restrictions for the company. Another promise was to cancel additional import tariffs worth of $300 billion of Chinese goods.
On the other side, Chinese officials were trying to call for a trade war truce as restrictive measures hurt exporters, threatening to reduce the revenue from the largest export market. "The U.S. side said it would not add new tariffs on Chinese exports," Xinhua agency reported briefly. However, no details were revealed. Other sources report that China had already downplayed ‘a deal’, stating that there are lots of things to do before concluding any arrangements. One of the largest issues in trade talks remains the intellectual property as the U.S. blames China in stealing companies’ secrets for years. Another concern is the requirement to dramatically increase imports of U.S. goods in China, including agricultural, machinery and automotive products.
Other regions’ leaders reacted positively on the news as the trade war worries had a negative impact on global financial markets. "The trade relations between China and the United States are difficult, they are contributing to the slowdown of the global economy," European Commission President Jean-Claude Juncker noticed. "Cooperation and dialogue are better than friction and confrontation," he said. European currencies weakened versus the U.S. dollar in first trading hours on Monday.
The most significant shifts were noticed for emerging markets currencies and global equities. For instance, the Chinese Yuan gained the most strength as USD/CNH lost almost 0.5% by 5:00 AM GMT. Gold price dropped 1.2%, trading at around $1390 per ounce early Monday. Japan’s Nikkei 225 benchmark soared 2% in Asia, German DAX 30 edged higher for 1%, S&P 500 futures rose 0.60%.