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After US President Trump mentioned he is ready to make a deal with Chinese President Xi, analysts at Danske Bank, see a 60% probability of a ceasefire but they warn that any real deal will take time to reach and is not likely to be done until some point in 2019.

Key Quotes:  

“We do not know any details of the conversation between Trump and Xi but it comes shortly after Trump had been threatening that if there were no agreement at the meeting, he would escalate the trade conflict further and put tariffs on all Chinese imports. The new signals  are clearly more positive and we believe we have moved from a 50-50 probability of an agreement to restart talks after the meeting to a 60-40 probability.”

“If Xi and Trump manage to make a ceasefire agreement, it would be positive for risk sentiment. Markets have already priced some of this in advance but confirmation of a ceasefire would add further to the upside potential. It would also dampen some of the uncertainty for businesses.”

“A ceasefire is no guarantee of a quick deal. Some big obstacles for a deal are in place, not least when it comes to China’s ‘Made in China 2025’ strategy, which we do not expect China to change in any significant way. A real deal will take time to negotiate (just look at the US deal with Mexico and Canada and the ongoing negotiations with the EU) and there are likely to be setbacks along the way – as in most other negotiations. So, volatility is likely to remain but, ultimately, we do expect a deal to be made at some point in 2019.”

“As the trade war has been one of the big dark clouds hanging over markets and the global economy, it will be positive if, and when, we have a deal. Less trade friction between the US and China would be positive for potential global GDP growth.”