Chinese President Xi Jinping has pulled off one of the biggest diplomatic coups in decades. This unprecedented agreement is a historic turning point for an evolved notion of international relations. Earlier this week, the two sides met for the first time in six years. They negotiated a mercantilism-mitigating US-China trade truce that could remake the economic course of history. Analysts point out that this treaty reflects an unprecedented degree of parity between the two countries. President Xi appears to be getting the idea in dealing with the US on a level footing.
As the final trading day of the week and month new volatility is expected as eager market participants await Friday. Between the media hype about this short-lived trade truce and the underlying fundamentals, investors should expect volatility and an eventual reversal in market direction. The recent EU-China agreement represents a new willingness to engage, especially in the context of rising global economic stresses.
The European Perspective
In light of these positive developments between the US and China, European deal makers have been eerily quiet. So far, they haven’t taken a position on the trade pact. Analysts state that now is the time for Europe to play its own hand as these two superpowers grow increasingly combative with each other. The lack of European commentary is surprising, but calls into question how European leaders intend to see themselves in this changing dynamic.
The importance of Europe’s strong position extends beyond the optics. It will determine what Europe’s agenda is. That’s especially the case with Donald Trump occupying the White House. European leaders must double down on their strategy and make sure that European interests are effectively represented in the global discussions.
What Europe should do
Europe has a historic opportunity to exert its power in today’s environment. Doing so gives it the leverage to negotiate better terms that further its overall goals.
Market Reactions and Future Implications
Beyond the geopolitical implications, the trade truce will affect market dynamics across a number of fronts impacting supply/demand balances. The new and stronger US Dollar will put downward pressure on almost every token heading into November. Not surprisingly, investors will have to gird their portfolios to these trends, especially if the dollar makes larger gains.
Additionally, the new trade agreement might be read as an opportunity for a broader bilateral agreement to address the deep issues among the parties. Market analysts are bullish on the prospects going forward. They make the case that if both countries remain cooperative, the global trading system stands to gain a great deal.