Deal on currency and Huawei? Speculations on US-China trade talks rock markets

As trade talks between the US and China unfold in Washington, a series of conflicting news reports have thrown markets into confusion, with US and Asian futures indexes briefly dropping upon news the talks had ended in failure.

Markets saw series of ups and downs on Thursday morning as investors awaited developments in the talks to resolve an ongoing trade war between Washington and Beijing, which are now in their third day. Led by Chinese Vice Premier Liu He and US trade representative Robert Lighthizer, the meetings have been a source of anxiety for investors.

The South China Morning Post (SCMP) sent US stock futures into a tailspin, reporting that the negotiations had reached an impasse with “no progress,” and that Liu “may leave earlier than expected.”

Dow futures fell by 300 points almost immediately, with futures on the S&P and the Nasdaq Composite each taking a 1 percent hit. Asian exchanges also responded with alarm, with the Nikkei slipping more than half a percentage point, and similar drops on Mainland China’s Shanghai Composite and Hong Kong’s Hang Seng Index.

White House officials soon responded to the report, however, dismissing any rumors that Liu had plans to leave Washington early and assuaging some of the fears.

A mere hours after the pessimistic piece in the SCMP, the New York Times ran a story singing an entirely different tune, reporting plans in Washington to loosen restrictions on Chinese telecom giant Huawei – which was placed on a US trade “blacklist” in May – allowing some business in “nonsensitive goods.” The happier news pared some of the losses on US and Asian markets alike.

Markets also rallied after Bloomberg reported the Trump administration was considering whether to revive a previously inked currency deal with Beijing, part of a larger pact which could see scheduled tariff hikes put on pause. Bringing back the agreement could be an early sign US-China relations are warming up after over a year of tariff wars.

Notwithstanding the SCMP report, by all indications the talks are set to continue in Washington on Thursday and Friday, when higher level meetings will reportedly take place. It remains to be seen what deals – or lack of them – might result, however for the moment it appears markets have settled on a cautious optimism.

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