Stocks and other risky assets are likely to enjoy a brief rally after the emergence of what appears to be a U.S.-China trade truce, analysts said. However, the longer-term outlook depends on what kind of lasting deal can be struck by the two largest economies, and how this could affect interest rates.
President Trump and Chinese President Xi Jinping reached a cease-fire in their trade battle, after meeting on Saturday in Japan.
The two sides said bilateral talks would resume and the U.S. would indefinitely shelve plans to levy duties on the roughly $300 billion of Chinese imports that aren’t currently covered by 25% tariffs. In addition, Trump said he would let U.S. firms sell high-tech equipment to Huawei Technologies Co. and China would start buying large amounts of American farm products.
Vasu Menon, senior investment strategist at OCBC Bank’s wealth-management unit in Singapore, said the truce “should be a positive in the short term for markets.” But it wasn’t clear if the two economic giants could eventually reach a longer-term agreement, he said, and a key question for investors was whether Saturday’s trade pact made the Federal Reserve less likely to cut interest rates.
“The interplay between U.S.-China tensions, Fed policy and global growth data will mean that markets will stay volatile in the coming months even if we see a relief rally with the latest outcome between Trump and Xi,” Menon said.
An expanded version of this report appears at WSJ.com
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