Investors welcome news of progress in US-China trade talks

CNA

11-05-2025

Investors welcomed the conciliatory tone at US-China trade talks this weekend aimed at cooling a trade war between the world's two largest economies and dispel some of the uncertainty clouding financial markets, though few expect a major breakthrough just yet.
Both sides declined to elaborate on negotiations, saying that further details will be released on Monday (May 12), though US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer on Sunday said a deal had been reached with China to cut the US trade deficit.
Chinese Vice Premier He Lifeng, who met his US counterparts in Geneva, described the meeting as "candid" and an important first step.
"This is a step in the right direction, showing that both sides are interested in coming to a constructive conclusion and develop a better trade relationship," said Eric Kuby, the chief investment officer at North Star Investment Management Corp. in Chicago.
"The details are quite sketchy, but I think the direction sounds to be more cooperative rather than combative, and I think that we have to view that as a positive."
The meeting in Switzerland could mark one of the biggest developments since US President Donald Trump launched sweeping tariffs on Apr 2, which threw the global trade landscape into chaos and set off extreme market volatility.
"I'm happy to report that we've made substantial progress between the United States and China in the very important trade talks," Bessent told reporters earlier.
Trump said late on Saturday after the first day of talks that the two countries had negotiated "a total reset ... in a friendly, but constructive, manner."
He added that "great progress" was made, without elaborating.
Recently, investors have expressed optimism that the worst-case trade scenarios would not come to pass, and pointed to signs of de-escalation between the US and China as a reason behind a rebound in equities.
"Markets may be encouraged by some agreement on a deal, but it will remain contingent on further details being released," said Gennadiy Goldberg, head of US rates strategy at TD Securities in New York.
"Recent price action suggests some optimism around a trade deal. If that turns out to be the case, pricing will have been justified. The risk is if the deal is less substantial than expected. Then the market might come away disappointed."
Indeed, despite comments by Trump ahead of the talks suggesting a lower level of Chinese tariffs, and a trade deal announced on Thursday between the US and Britain, many market participants said they were not expecting major breakthroughs in the talks.
"We're still doubtful that direct US-China negotiations will lead to a 'grand compromise'," said Thierry Wizman, global FX and rates strategist at Macquarie, in a note to clients.
IMMEDIATE PACT SEEN AS UNLIKELY
Both the US and China may want, or even need, to reach a deal, said Liqian Ren, director of Modern Alpha at WisdomTree Asset Management. At this early stage, however, there seems to be little incentive to do so rapidly, she added.
"Each still wants to see how the other side copes with negative headwinds," Ren said.
"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."
Trade tensions between the two nations escalated last month, when the US boosted tariffs on all Chinese imports to a whopping 145 percent, and China then raised levies on US imports to 125 percent.
On Friday, comments by Trump that an 80 percent tariff on Chinese goods "seems right", making his first suggestion of a specific alternative to the 145 percent levies, created some hope of progress toward resolving the dispute.
The benchmark S&P 500 stock index has already erased the steep losses seen in the immediate aftermath of the tariffs announcement on Apr 2, although businesses continue to warn investors of their impact, and the uncertainty they create, in earnings-related comments.
The S&P 500 remains down about 8 percent from its February all-time high and roughly 4 percent for the year.
Amid the tariff chaos, weak consumer sentiment surveys and other "soft data" have raised concerns about US growth, although most economic data has indicated resilience in the economy.
EYEING MARKET VOLATILITY
Volatility, meanwhile, remains. The Cboe Volatility Index the options-based measure of investor anxiety, hovered around 22 late on Friday, well below its recent closing high of 52.33 in early April, but above its longer-term median of 17.6.
One of the factors curbing that volatility so far has been the high cost of establishing short positions betting on future market declines, said WisdomTree's Ren.
"When a single (social media post) from the president can make the market move 10 percent, it becomes very costly" to establish those positions, Ren said. Equities soared on Apr 9 after Trump paused many of the heftiest tariffs for 90 days.
Still, markets were poised for more volatility ahead, said Matt Gertken, head of geopolitical strategy at BCA, a macroeconomic investment research firm.
Gertken said the firm's best advice was to "sell on strength."
"To talk about any other scenario, you end up with a lose-lose outcome," he warned.
TOUGHEST DEAL TO NEGOTIATE
Despite the relatively fast agreement with Britain, Claudio Irigoyen, head of global economics research at BofA Securities, cautioned that other deals would be harder to hammer out, with China being the toughest.
"I can see trade deals coming with India, Japan and maybe South Korea, down the road," he said. "China - this is the most complicated and will be the last one to come," in part because the geopolitical relationship is entangled with the trade ties.
Investors are concerned that negative scenarios have not been factored into asset prices and several said the market would probably be content with only modest signs of progress.