The Trade Talk on Wed., Hoping for the Best, Will Indicate How the Market in 1H19 Goes

Now that the tension in the U.S. government has eased or at least until February 15, 2019, the focus has shifted to a new round of trade talk that was scheduled to be held on this Wednesday between Washington and Beijing’s delegates led by VP Liu He.

The visit of VP Liu He, which will be a higher-level negotiation this time, shows that China would want to find a truce in this trade war within the time frame given by the U.S. to be before March 1.

 

There are three possible scenarios for the trade talk this week between the U.S. and China. The base case for this trade talk would be an agreement from Beijing to buy more American goods. The most problematic issue with the accusation of Chinese tech theft could also be reached for the best deal.

After this trade talk, if officials agree for another date, that could send positive sentiment for global markets. Although the deal could not possibly be completed before March 1, a new round of trade talk would be much obliged.

 

The best-case scenario is the Chinese come to the table with an offer on economic reforms, which is highly unlikely to happen. It is very hard for the Chinese to show that they are serious about open up their state-driven model, but if somehow they pull it off, the market would rally in an instant.

 

The first person (not the authority) to announce how the meeting goes would be the U.S. president himself. Look out for the sign and tone in his tweet for the worst-case scenario. It is true that the U.S. market has suffered a lot from this dispute, but China seems to be in the worsen shape right now. Remember that Trump is not afraid to walk out from the negotiation, just like what he did before in May.