MacroscopeThe Xi-Trump trade truce may not end in a peace treaty, and markets should prepare accordingly

Neal Kimberley says investors can adjust short-term plans, but the pending US tariff hike has only been delayed for 90 days

And, even if the trade war is resolved for good, investors may have to prepare for more Fed interest rate rises than expected

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A trader works on the floor of the New York Stock Exchange on Monday. Stocks climbed after the US and China declared a truce in their trade war, while Treasuries and the dollar fell. Photo: Bloomberg

Published: 12:00pm, 4 Dec 2018Updated: 10:29pm, 4 Dec 2018

A 90-day ceasefire in the China-US trade war isn’t a peace agreement. Markets will take the lead from Saturday’s meeting between China’s President Xi Jinping and his US counterpart Donald Trump at the G20 in Buenos Aires, but they shouldn’t get carried away. The can just got kicked 90 days down the road.

That isn’t long but it’s what Beijing and Washington have agreed on as a time frame to resolve a multitude of long-standing differences. If agreement proves illusory, the White House statement on the Xi-Trump meeting made clear that “the 10 per cent tariffs will be raised to 25 per cent” with the delayed roll-out of tariff increases that had originally been scheduled for January.

As the clock ticks, in the very short term, markets must try and compute the implications of this trade war ceasefire. Some computations might be easier than others.

The White House statement noted that “China has agreed to start purchasing agricultural product from our farmers immediately”. Markets might therefore rationally expect an uptick in the price of US soybeans. The onset of tariffs and counter-tariffs have seen Chinese purchases in 2017 of US$12 billion of US soybeans dwindle to almost nothing this year, resulting in lower US soybean prices.

Now for the hard part – making good on China’s trade war truce promises