US-China trade deal would have to be ‘extremely far-reaching’ to calm the markets, JP Morgan strategists say


Global markets are enjoying some gains this week on hopes that Beijing and Washington will reach a trade agreement, but strategists at J.P. Morgan Asset Management are skeptical on whether anything significant will be resolved.

Chinese and the U.S. officials concluded another round of trade talks Wednesday, which were extended into a third day — suggesting there has been some compromise. The Chinese Foreign Ministry said that details of the talks will be released “soon.”

“I think (the deal) would have to be extremely far-reaching for the markets to breath an enormous sigh of relief,” Karen Ward, chief market strategist at J.P. Morgan Asset Management, told CNBC Wednesday.

“I don’t think, unfortunately, that (the trade war) is something that will disappear from our horizon for the full year,” she added.

President Donald Trump campaigned in 2016 on cracking down on what he called Chinese trade abuses, and both countries have been at odds for about a year. The U.S. has put tariffs on $250 billion in Chinese goods — and has threatened more, while Beijing has responded with tariffs on $110 billion in U.S. goods.

Ward added that the deal “would have to be extraordinarily complete” and “it would also have to be clear that (Trump) is not diverting attention just away from China but towards Europe and the autos” to calm down the financial markets.

Investors have fretted over the escalation in tensions between Beijing and Washington and their wider impact. According to data collected by J.P. Morgan Asset Management, there has been a clear drop for U.S. and Chinese manufacturing figures, suggesting that both countries are feeling the effects of the trade conflict.

“We would have to feel a strong conviction that (the America First policy) was just off the political agenda and it is very hard to see that when there is still quite a lot of electoral support for this agenda,” Ward also told CNBC.

US recession?

Mike Bell, a global market strategist at J.P. Morgan Asset Management, said it was clear that U.S. growth will fade in 2019, while presenting the bank’s “Guide to Markets” at an event in London on Wednesday. The bank believes that the positives from the fiscal stimulus messages of last year will subside, which, coupled with the trade war, will add pressure to the economy.

By year-end U.S. growth is set to be below 2 percent “but in the near term a recession still looks unlikely,” Ward said in the research.

Other strategists have said the U.S. economy could even enter a technical recession if Trump does not fix the ongoing impasse on trade with China.

“If there is a recession and a crash, it is Trump’s decision, because he has made a crucial mistake here of closing the government. At the same time he hasn’t resolved China,” Michael Harris, founder of Cribstone Strategic Macro, told CNBC’s “Squawk Box Europe” on Monday.

“If (Trump) doesn’t resolve China, he is asking for a recession, I think that’s a given because you can’t have two major uncertainties at the same time,” Harris added.

By Silvia Amaro


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