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Citi

US and China Reach Temporary Trade Truce

At a post-G20 summit meeting in Buenos Aires on Saturday night, Donald Trump and Xi Jinping agreed to halt trade tariffs for 90 days to allow for further talks. The US agreed not to boost tariffs on $200bn of Chinese goods from 10% to 25% and China agreed to buy a "very substantial" amount of agricultural, industrial and energy products, the US says.

 

The White House sees this as a victory but, notably, in a concession to China, also appears to be reversing course on its previous threats to tie trade discussions to security concerns, like China’s attempted territorial expansion in the South China Sea.

 

Although the outcome of the talks produced only a temporary truce, it is expected to generate positive momentum in risk assets. The announcement is also likely to reverse USD’s sharp rally on Friday, based partly on US – China pessimism.

 

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Aside from trade risks, Citi analysts see global equities discounting a greater growth deterioration than seems likely over the coming few quarters. With option-implied volatility well above long-term averages in many global markets, investors should not look at current market performance as indicative of longer-lasting trends.

 

Citi’s Global Investment Committee (GIC) maintained its overall tactical asset allocations targeting the coming 12-18 months performance. Global equities remain overweight by 1%, global fixed income 1% underweight. While Citi analysts remain neutral on US equity market, non-US equities are preferred as a long-term valuation opportunity. Within Emerging Markets, Citi analysts remain Overweight on Asian Equities given beaten down valuations and supportive earnings growth.

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