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  • Trade talks are set to kick off this week but markets dubious of any progress.
  • China’s sticking to its three key demands, among the U.S.’s demands are structural reforms to China’s economy.

In weekend press, Bloomberg ran  an article related to this week’s meeting between US and Chinese trade negotiators, explaining that meet  amid tempered expectations for breakthroughs in their yearlong trade war:

Almost three months after their trade talks  broke down  in acrimony, Chinese and American negotiators meet again in Shanghai this week amid tempered expectations for breakthroughs in their yearlong trade war.

Two days of talks are scheduled to restart Tuesday after an uneasy truce reached by Presidents Donald Trump and Xi Jinping on the sidelines of the Group of 20 summit in Osaka, Japan, last month. Deep tensions remain, though, and recent days have brought mixed signals from both sides, with neither showing an urge to compromise.

While China has indicated its readiness to buy U.S. agricultural products, it has also called the U.S. the “black hand” behind anti-government protests in Hong Kong and said Friday an investigation into FedEx Corp.’s claims it mistakenly rerouted Huawei Technologies Co. packages to the U.S. found additional legal violations.

At stake is the health of a global economy weighed down by uncertainty for markets and companies. The International Monetary Fund last week further reduced its estimates for global growth and  warned  that damage was to some extent “self-inflicted” by prolonged uncertainty caused by the trade war, escalating tensions over technology, and Brexit.

“There is still a huge gap between the two sides on key sticking points,” said Robin Xing, chief China economist at Morgan Stanley in Hong Kong. “So far there is still no clear path toward a comprehensive deal.”

China’s sticking to its three key demands: The immediate removal of all existing tariffs, a balanced agreement, and realistic targets for additional Chinese purchases of American products.  

Among the U.S.’s demands are structural reforms to China’s economy, greater protection of intellectual property rights and a more balanced trading relationship. Secretary of Commerce Wilbur Ross on Tuesday said Trump’s objective is to get “a proper deal.”

Market implications

Risk-FX will be adversely affected should there be no signs of headway due to a clash of demands from both sides. AUD/JPY and AUD/USD, as well as precious metals, have been the closest correlated currencies and safe-haven metals to the trade-war saga to date.