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Previewing next week’s high-level trade negotiations between the United States (US) delegation led by Trade Representative Lighthizer and Treasury Secretary Mnuchin and their Chinese counterparts, “We see a more than 50-50 chance that the talks end with a small interim deal, as both sides seem to have an interest in striking such a deal (we put the probability at 60%),” said Danske Bank analysts.

Key quotes

“On the US side, there is a rising concern over the weakening of the US economy heading into the Presidential election year in 2020. This week US ISM manufacturing showed another sharp drop in activity with export orders being particularly weak.”

“On the Chinese side, there has been concern over Trump’s temper and if he could in effect escalate tensions (which it looked like in early August when he retaliated in response to China’s retaliation).”

“We expect an interim deal to underpin risk assets in the short term. An interim deal would to some extent be a sign that Trump has a fairly low pain threshold and reduce the tail risk of a much further escalation. What happens on the other side of an interim deal will depend on whether the new ‘ceasefire’ stays longer than a month this time and whether the two sides move any closer to a real deal.”