If everything goes right we expect to see a trade deal by the end of next week.
Economic data are still in line with a moderate recovery.
USD/CNY is stable ahead of the trade war endgame, EUR/CNY is lower on USD strength.
75% chance of Xi-Trump summit announcement next week
This week the US and China continued trade talks in Beijing ahead of what both sides hope to be the endgame in Washington. The goal is to close a deal by the end of next week and announce a signing summit between Chinese President Xi Jinping and US President Donald Trump to be held later this month or in early June . Politico/SCMP wrote that 'Trump's increasing desire to strike a quick agreement could result in a deal in principle announced by the end of next week, according to several people close to the discussions'.
The two sides kept their cards close to their chests after the latest round of talks in Beijing, providing few details on the talks (see Global Times , 2 May). This led to some speculation that the talks might be reaching an impasse. However, US Treasury Secretary Stephen Mnuchin continued to call the talks 'productive' when he left Beijing this week (see Reuters , 1 May).
The Politico article also reported that the US will not get China to roll back subsidies as much as it would like to . The Head of International Affairs of the US Chamber of Commerce Myron Brilliant said during a call with reporters, 'I'm not sure we're going to get all the progress we want' but that the Chamber was 'sanguine' about the progress made on subsidies.
Comment: We see a 75% probability that a signing meeting between Trump and Xi will be announced at the end of the talks next week , probably by Trump himself in the Oval office. The two sides seem to have agreed on 95% of the content and, although a few difficult issues are left, we very much doubt that Trump will walk away from a deal . It would be too costly in terms of falling stock markets and economic uncertainty and Trump would miss out on important gifts to voters in key swing states such as Iowa (agriculture) and Michigan (auto industry). The 2020 election campaign is increasingly gaining steam and Trump needs all the tailwind he can get from the economy and stock markets to go after re-election.
We cannot rule out the two sides failing to reach a deal in Washington next week but, in our view, this would be likely to trigger a big decline in stock markets, which would put pressure on the two sides to get back at the negotiating table and get the deal done.
Softer April PMI but no need to despair
As we warned in China Weekly Letter - Xi to visit White House 'soon', data confirm recovery , 26 April, April PMI turned out to be a disappointment. After a surge in March, both the official version and the Caixin PMI manufacturing fell back in April (see Flash Comment China - PMI lower but moderate recovery on track , 30 April). On a more positive note, profit growth for March rebounded to 13% y/y, verifying that the economy turned better in Q1.
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