US-China Trade Talks: Initial Thoughts

The US have been touting a "trade deal", via the White House Press Office, while Treasury Sec Bessent has used more moderate language, noting that "substantial progress" has been made, and that further details on this progress will come on Monday.

The readout from the Chinese side has been somewhat clearer, indicating that the world's two largest economies have agreed to a 'trade consultation mechanism', after progress was made in talks over the weekend, with said mechanism being seen as the 'first step' to resolving differences.

What we seem to have here, then, pending what President Trump has touted as "one of the most important" Truth Social posts he'll ever issue, is a broad framework under which the two nations can conduct further talks, with the aim of reaching a broader trade agreement. Not the worst case outcome that was possible from this weekend's talks, far from it, but not a concrete deal either.

As noted, the greenback has caught a bid at the FX open, and one would expect sentiment more broadly to firm, and equities to kick higher at the futures re-open in a few hours' time. That said, conviction could be somewhat lacking for the time being, particularly as we await greater clarity on what exactly has been agreed.

Overall, though, there seem to be more questions than answers, for the time being. Chiefly, on market participants' minds, will be whether this 'progress' allows for any tariffs to be paused, reduced, or rolled back, and if so for how long? Secondly, there is the issue of further talks, when they are likely to take place, and what matters will be discussed?

Greater clarity on these matters, to provide firm backing to the apparent more conciliatory tone of rhetoric seen from both sides, will be needed to give markets additional confidence that the peak of trade uncertainty, and tit-for-tat tariffs, is indeed in the rear view mirror, and to unlock the door to a more durable and sustainable firming in risk appetite.

For the time being, though, given the degree of unknowns that persist, fading strength in the dollar, and upside in equities, if it occurs at the open, remain my preferred strategies.