By Suzanne McGee
(Reuters)-Investors hope that American-Chinese commercial talks this weekend will cool a trade war between the two largest economies in the world and will dissipate some of the financial markets disturbing uncertainty, although little expect a major breakthrough for the moment.
The long -awaited meeting in Switzerland could mark one of the greatest developments since the American president Donald Trump launched scanning prices on April 2, which threw the world commercial landscape in chaos and triggered extreme volatility of the market.
“She is the mother of all negotiations,” said Alejo Czerwonko, director of investments, emerging markets Americas, in UBS.
“There are hundreds of billions of dollars on the line, a rate of 145% on Chinese exports which is equivalent to a sort of de facto embargo and grievances that extend far beyond trade.”
American-Chinese sales talks in Geneva had adjourned for the day and had to continue on Sunday, a familiar source told Reuters with discussions.
US President Donald Trump said late Saturday that the two countries had negotiated “total reset … in a friendly but constructive manner”.
He added that “great progress” has been made, without developing.
Recently, investors have expressed optimism as to the fact that commercial scenarios The worst cases would not affect and highlighted the signs of de-escalation between the United States and China as a reason behind a rebound in actions.
But despite Trump’s comments before talks suggesting a lower level of Chinese prices and a trade agreement announced Thursday between the United States and Great Britain, many market players said they did not expect major breakthroughs this weekend.
Rather, they have limited themselves to hoping that nothing is bad when the two parties find themselves face to face for the first formal round of what can be prolonged negotiations.
“We still doubt that the American-Chinese direct negotiations will lead to a” big compromise “, said Thierry Wizman, a global FX strategist and rates at Macquarie, in a note to customers.
Immediate pact considered improbable
The United States and China may, or even need to conclude an agreement, said Liqian Ren, director of modern Alpha at Wisdomtree Asset Management. At this early stage, however, there seems to be little incitement to do it quickly, she added.
“Everyone always wants to see how the other side faces negative opposite winds,” said Ren.
“Right now, the market is perhaps a little too optimistic in terms of what China and the United States can achieve and how speed will evolve.”
Trade tensions between the two nations increased last month, when the United States increased prices for all Chinese imports to 145%, and China then increased the 125%American imports.
Friday, Trump’s comments that a price of 80% on Chinese products “seems fair” – making its first suggestion of a specific alternative to 145% lips – created a certain hope of progress towards the resolution of the dispute.
The S&P 500 reference stock market index has already erased the steep losses observed in the immediate consequences of the announcement of prices on April 2, although companies continue to warn investors of their impact and the uncertainty they create, in the comments linked to the profits.
The S&P 500 remains down approximately 8% compared to its record in February and around 4% for the year.
In the middle of tariff chaos, low surveys on consumer feelings and other “soft data” have raised concerns about American growth, although most economic data have indicated resilience in the economy.
Ocular market volatility
Volatility remains. The CBOE volatility index, the measurement of investor anxiety options, oscillated around 22 late Friday – well below its recent closing top of 52.33 in early April, but above its longer -term median of 17.6.
Until now, one of the factors slowing down this volatility has been the high cost of establishing short positions betting on the cuts to the future market, said Ren of Wisdomtree.
“When only one (social media position) can move the market by 10%, it becomes very expensive” to establish these positions, said Ren. The actions skyrocketed on April 9 after Trump interrupted many heaviest rates for 90 days.
However, the markets were ready for more volatility to come, said Matt Gertken, head of the geopolitical strategy of BCA, a research firm in macroeconomic investment.
Gertken said the best business advice was to “sell in force”.
Any sign of progress in initial discussions would be welcome and allowed China to devote more energy to its internal economic problems, Andrew Mattock, portfolio director at Matthews Asia said.
“To talk about any other scenario, you end up with a losing result,” he warned.
An agreement most difficult to negotiate
Despite the relatively rapid agreement with Great Britain, Claudio Irigieu, responsible for the global economy research in Bofa Securities, warned that other transactions would be more difficult to hammer, China being the most difficult.
“I can see trade agreements coming with India, Japan and perhaps South Korea, at the bottom of the road,” he said. “China – it is the most complicated and will be the last to come”, in part because the geopolitical relationship is tangled with commercial links.
Investors fear that the negative scenarios have not been taken into account on the markets.
“If we get out of Geneva with people using incendiary language and strong disagreements, I don’t think it’s a price,” said Czerwonko from UBS.
The market would probably be happy with only signs of modest progress, have said several investors.
“We don’t need to speak happy,” said Gertken.
(Report by Suzanne McGee in Providence, Rhode Island; additional report by Laura Matthews and Gertrude Chavez dreyfuss in New York and John Revill in Geneva; edition by Lewis Krauskopf, Mark Potter, Matthew Lewis and Edmund Klamann)
