Wall Street was ready for the latest twist in the trade war. Here's how experts think Trump and Xi's trade truce will play out.

  • The year-old trade war between the US and China reached a temporary truce as Presidents Donald Trump of the US and Xi Jinping of China said they’re delaying new tariffs to let negotiations continue.
  • That outcome of the G20 summit in Japan isn’t the resolution some investors hoped for or the escalation others feared, but the “truce” is the outcome most experts anticipated.
  • Strategists on Wall Street have been projecting what they think will happen next on the trade front and for global markets.
  • Visit Business Insider’s homepage for more stories.

The trade war between the US and China has been full of surprises and reversals, but late Friday the two sides reached a “truce” that was widely expected.

US President Donald Trump and Chinese President Xi Jinping are giving their teams more time to negotiate. The tariffs they have announced over the year remain in place, but the additional duties that they have threatened are being postponed.

Here’s how some strategists said they were thinking about this scenario and what it will mean.

‘Prolonged truce’

TRUMP xI G20 TRADESAUL LOEB/AFP/Getty ImagesUS President Donald Trump (R) and China’s President Xi Jinping (L) along with members of their delegations, hold a dinner meeting at the end of the G20 Leaders’ Summit in Buenos Aires, on December 01, 2018. – US President Donald Trump and his Chinese counterpart Xi Jinping had the future of their trade dispute — and broader rivalry between the world’s two top economies — on the menu at a high-stakes dinner Saturday.

Mark Haefele, global chief investment officer for UBS’s global wealth management business, said he would keep a positive outlook on stocks for now. He said US stocks could rise as much as 5% in the next six months and shouldn’t go much lower, while over the same time frame, Chinese stocks will trade in a range of down 5% to 10% up.

“We think the most likely outcome of the meeting will be a prolonged truce,” he said. “We remain overweight equities, with a regionally selective approach. But given the risks, we also recommend counter-cyclical positions.”

The battle isn’t over

Trump Abe G20BRENDAN SMIALOWSKI/AFP/Getty ImagesJapan’s Prime Minister Shinzo Abe (R) greets US President Donald Trump as he arrives for the G20 Summit in Osaka on June 28, 2019.

Ed Campbell, portfolio manager at PGIM’s QMA quantitative stock business, said the combination of a truce, more economic stimulus from China, and potential rate cuts from the Federal Reserve and European Central bank, would be good for risk assets.

But he thinks there is a much broader dispute brewing.

“US-China relations have permanently diverged and should be viewed in the context of a geopolitical competition that is unlikely to be resolved by a trade deal,” he said. “The current tensions are likely to persist for some time.”

Going up

Trump in ChinaArtyom IvanovTASS via Getty Images

“(This) outcome could lend additional support to the current rebound in stock prices, and likely push bond yields somewhat higher,” said David Joy, chief market strategist for Ameriprise.

Obstacles ahead

John Vail, the chief global strategist at Nikko Asset Management, said he still thinks the US will put new tariffs on Chinese exports in the fourth quarter of this year as the current talks run aground.

“The two sides’ red lines are quite stark and may prevent any progress made at future talks,” he said. “Furthermore, both sides may feel that they have the upper hand.”

Mostly downside risk

Paul Eitelman, senior investment strategist for Russell Investments, said he’s mostly preparing for negative reactions on the trade front. That’s because the risks to stocks are great, and the possibility of a deal won’t give the market that much of a lift by comparison.

“This is the dilemma we’re faced with at mid-year. A positive central scenario but with asymmetric risks to the downside.

Deal difficulties

Trump XiNICOLAS ASFOURI/AFP/Getty ImagesUS President Donald Trump (L) and China’s President Xi Jinping leave a business leaders event at the Great Hall of the People in Beijing on November 9, 2017.

The BlackRock Investment Institute’s position is that tensions will outlast the current trade war.

“A deal later this year is possible but would face significant challenges in implementation and enforcement – and we see structural tensions persisting,” according to its latest research.

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