Investors Remain Optimistic As US-China Engage In Trade Discussions In Geneva

<p>Financial markets are closely watching the outcome of renewed trade negotiations between the United States and China, with investors hoping the high-stakes dialogue in Switzerland could defuse mounting tensions. While expectations remain tempered, the talks are being viewed as a critical step in stabilising global markets rattled by a heated tariff dispute.</p>
<p>Following months of escalating pressure, this weekend&rsquo;s discussions mark the first formal round of talks between Washington and Beijing since sweeping US tariffs were introduced on April 2, reported Reuters.</p>
<p>The global financial community is hoping the meeting will help dial down hostilities that have triggered intense market swings and dented investor confidence.</p>
<p>&ldquo;This is the mother of all negotiations,&rdquo; said Alejo Czerwonko, chief investment officer, Emerging Markets Americas, at UBS. &ldquo;There are hundreds of billions of dollars of trade on the line, a 145 per cent tariff on Chinese exports that amounts to some sort of de facto embargo and grievances that extend well beyond trade,” the analyst added.</p>
<h3>Low Hopes for Breakthrough, But Room for De-escalation</h3>
<p>Although US President Donald Trump described the early rounds of discussion as having led to &ldquo;a total reset … in a friendly, but constructive, manner,&rdquo; and noted that &ldquo;great progress&rdquo; was made, he provided no concrete details. A source familiar with the talks confirmed to Reuters that the Geneva negotiations had adjourned for the day and would resume on Sunday.</p>
<p>Despite the president&rsquo;s optimistic tone and signs of de-escalation, most market participants remain sceptical of any immediate breakthrough. Recent developments, including a US-UK trade deal and Trump&rsquo;s suggestion of a reduced 80 per cent tariff on Chinese goods, have fueled some optimism. Still, the consensus view is that these negotiations may take time to bear fruit.</p>
<p>&ldquo;We’re still doubtful that direct US-China negotiations will lead to a ‘grand compromise’,&rdquo; said Thierry Wizman, global FX and rates strategist at Macquarie, in a note to clients.</p>
<p>Analysts argued that both sides appear to be testing each other&rsquo;s tolerance for economic headwinds before committing to significant concessions. &ldquo;Each still wants to see how the other side copes with negative headwinds,&rdquo; said Liqian Ren, director of Modern Alpha at WisdomTree Asset Management. &ldquo;Right now, the market is maybe a little bit too optimistic in terms of what China and the US can achieve and how fast events will move.&rdquo;</p>
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<h3>Tariffs Weigh on Markets, Volatility Persists</h3>
<p>The ongoing tariff standoff has already had a pronounced effect on global equities. After the US raised tariffs on all Chinese imports to 145 per cent, China responded by hiking levies on American goods to 125 per cent.</p>
<p>While the benchmark S&amp;P500 index has recouped some of the steep losses suffered in early April, it remains down roughly 8 per cent from its February high and 4 per cent for the year.</p>
<p>Volatility also remained elevated. The Cboe Volatility Index hovered near 22 late Friday, down from its peak of 52.33 in early April, but still above its long-term median of 17.6. According to Ren, one factor suppressing even greater volatility is the high cost of short-selling amid the market&rsquo;s sensitivity to sudden political developments. &ldquo;When a single (social media post) from the president can make the market move 10 per cent, it becomes very costly&rdquo; to bet on declines, she said.</p>
<p>Looking ahead, some observers believe future deals with countries like India, Japan, or South Korea may materialise sooner than an agreement with China. &ldquo;China&mdash;this is the most complicated and will be the last one to come,&rdquo; said Claudio Irigoyen, head of global economics research at BofA Securities.</p>