Union Bank of Switzerland’s analysis team suggests that the markets already seems to have prices in the US-China trade deal and their base case, to which they assign a 60% probability, is that a trade agreement will be signed in the next 2 to 3 months.
“We think any deal would include a commitment to reduce bilateral trade imbalances, and a review of intellectual property protection and forced technology transfer. But this positive outcome appears to be well priced in.”
“Chinese stocks, which are highly sensitive to the result of the talks, have been the best performing market of the year, with the Shanghai Composite up 22%, roughly twice the rise in global stocks. And US industrials, a sector which is also sensitive to trade conditions, have outperformed the S&P 500 by nearly 2% points this year.”
“Also, regardless of whether an agreement is reached, the deep-seated, longer-term nature of US–China rivalry is likely to continue to be a source of periodic volatility, and should temper any market enthusiasm in the event of a trade deal.”
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