Suzanne McGee
(Reuters) - Contenders welcome this weekend in the United States - The tone of settlement in China's trade negotiations aims to cool down the trade war between the world's two largest economies and to remove some uncertainty in financial markets, although few expect significant breakthroughs so far.
To make investors signs that the worst of the U.S.-China trade war may be avoided, U.S. stock futures rose on Sunday night. The S&P 500 E-Minis rose 1.3%, while Nasdaq Futures rose 1.6%.
Both sides declined to elaborate on the negotiations and said more details will be released on Monday, although Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer said on Sunday that a deal with China was reached to reduce the U.S. trade deficit.
Chinese Vice Premier met his American counterpart in Geneva, and he 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 constructive conclusions and building better trade relations,” said Eric Kuby, chief investment officer at North Star Investment Management Corp., Chicago.
“The details are sketchy, but I think the direction sounds more cooperative than aggressive, and I think we have to see it as positive.”
The Swiss meeting may mark one of the biggest developments since President Donald Trump launched a massive tariff on April 2, which has put the global trade landscape into chaos and triggered extreme market volatility.
Recently, investors have expressed optimism that the worst trade scenario will not pass, pointing to signs of a downgrade between the United States and China, which is the reason for the stock's rebound.
"There may be agreements on certain agreements to encourage the market," said Gennadiy Goldberg, head of U.S. interest rate strategy at TD Securities in New York.
"Recent price action shows some optimism about the trade agreement. If it turns out to be justified, the risk is that if the deal is less important than expected. Then the market may be disappointed."
Indeed, despite President Donald Trump’s comments ahead of the negotiations, suggesting that China’s tariff levels are low and a trade deal announced between the United States and the United Kingdom, many market participants said they did not expect a major breakthrough.
“I’m not sure if I’ll click the ‘Buy’ button on what I’ve heard today, but if we can make substantial progress in China, I think the market will like it,” said Jack Ablin, founding partner and chief investment officer of Cresett Capital, Chicago.
Deemed as unlikely immediately
Both the United States and China may want to or even need to reach an agreement, said Liqian Ren, director of Hyundai Alpha at Wisdomtree Asset Management. She added that at this early stage there seemed to be little motivation to do so quickly.
"Everyone still wants to see how the other side deals with the negative headwind," Ren said.
“Currently, the market may be a little optimistic about the realization of China and the United States and the speed of events going forward.”
Trade tensions between the two countries escalated last month when the United States raised tariffs on all Chinese imports to 145%, while China retaliated to 125% by raising the U.S. import tax to China.
On Friday, Trump's comments said the 80% tariff on Chinese goods "seems to be right" - some hope for a dispute resolution amid his first proposal to propose a specific alternative to a 145% tax.
The benchmark S&P 500 has eliminated the huge losses from deletion immediately after the April 2 tariff announcement, although companies continue to warn investors about the impact and the uncertainty it creates.
The S&P 500 index fell about 8% from its all-time high in February, and about 4% this year.
Amid the tariff chaos, weak consumer sentiment surveys and other "soft data" have raised concerns about U.S. growth, although most economic data suggests resilience in the economy.
Attention market fluctuations
There is still fluctuation. The CBOE volatility index, based on options-based investor anxiety measures, hovered around 22 late Friday — well below its latest 52.33 closing high at the beginning of April, but its long-term median was 17.6.
One of the factors that curb volatility is the high cost of determining a short-term position on future market declines, WisdomTree's Ren said.
Ren said: “When a single president (social media post) can shift the market by 10%, the cost of establishing these positions is very high. Stocks soared on April 9 after Trump stopped many of the highest tariffs for 90 days.
Despite this, the market is expected to increase volatility, said Matt Gertken, head of geopolitical strategy at BCA, a macroeconomic investment research firm.
Gertken said the company's best advice is to "sell with strength."
Andrew Mattock, portfolio manager for Matthews Asia, said any signs of progress in the initial discussion would be welcome and allow China to devote more energy to its domestic economic problems.
He warned: “Talking about any other situation, you will end up with a failure.”
(Report from Suzanne McGee in Providence, Rhode Island; Laura Matthews, Gertrude Chavez-Dreyfuss, Saeed Azhar of New York, Saeed Azhar, Lewis Krauskopf and koh gui qing in New York, John Revre Leslie Adler)