What a US-China trade deal will bring to the markets
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In our view, a US-China trade deal is likely in H2 - and we expect it to be extensive.
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We look for a deal, among other things, to roll back tariffs to a large degree. Meanwhile, we see a 15% risk Donald Trump will attack the car industry in a next step.
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A trade deal would support a recovery in China and emerging markets and stabilise eurozone growth at a time when past monetary easing also starts to support.
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In equities, a trade deal is largely priced in, leaving risks largely balanced if not slightly on the downside, given the negative 'reality gap' at present.
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In FX markets, we expect a trade deal to support commodity currencies versus notably JPY; EUR/USD support in 3-6M but muted to negative initial reaction.
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