Xi Jinping has announced that the US and China will start a new round of trade talks. He emphasized the importance of improving cooperation and trade while reducing misunderstandings between the two countries. Xi reinforced China’s commitment to the Geneva agreement and invited Trump to visit China again. He highlighted the need to prevent disruptions in China-US relations, noting that both nations agree on this.

Engagement in Trade Consultations

Xi encouraged both nations to actively participate in ongoing economic and trade consultations. He warned the US against allowing ‘Taiwan independence separatists’ to jeopardize the relationship between China and the US. Recent developments have been viewed positively, affecting stock market trends. However, Xi’s invitation to Trump suggests that Xi may be unlikely to visit the US himself. This comes even after discussions about a possible visit around their birthdays in mid-June. Xi’s announcement sends a clear message. China aims to maintain stability in trade relations and will not allow outside or internal issues to disrupt progress. The call to return to structured trade talks indicates we can expect a more stable and rule-based exchange soon.

Strategic Implications and Market Reactions

Reaffirming the Geneva agreement while issuing an open invitation indicates a willingness to reconnect, but only as long as it does not appear weak domestically. This careful approach suggests that travel may not be used as a negotiation tool. Moreover, given the recent timing, it seems there’s no interest in reciprocal visits. Zhongnanhai’s firm stance against support for Taiwan self-determination shows that diplomatic discussions are closely tied to economic conversations. It’s clear: if Taiwan issues escalate, any agreements could be stalled or reversed. Markets saw a short-term increase following this announcement, mostly due to hopes for renewed discussions. However, we should be cautious. Beneath this uptick lies an atmosphere of uncertainty. To gain real insights, we must look beyond the headlines at upcoming schedules and various official meetings. Li’s team has previously facilitated trade discussions. If they hold documented meetings again in the next two weeks, that will be a strong sign of potential progress. Meanwhile, silence from US mid-level officials is concerning. Until we see those names in official statements again, any optimism remains fragile. On the hedging front, there’s a focus on protective strategies amid volatility in Q3. Implied volatility isn’t surging, but it also isn’t dropping in line with rising equity. This discrepancy indicates that traders expect ongoing fluctuations, even as index levels rise. Continued buying of out-of-the-money puts in US and Chinese industrial sectors, mainly through cross-border ETFs, reflects a sentiment that diverges from media narratives. In the upcoming sessions, we will focus on trade-weighted currency baskets, especially changes in the yuan fix and its offshore spread. A narrowing gap could suggest Beijing is moving towards a neutral policy ahead of further talks. If this happens swiftly, risk proxy pairs like AUD/USD may see a temporary boost. However, if the People’s Bank of China resumes significant market interventions, that could indicate hesitation to allow market openness to influence capital movements. Regarding T-bill futures, there is only a slight adjustment, suggesting that the bond market is viewing this as a communication event rather than a major policy change. The swap curve is still flattening towards the end of the year, indicating that traders are preparing for shallow cooperation that could quickly shift to tariff disputes. In summary, actions will clarify whether this is just a pause or a real reset. For now, the trade desk should remain cautious about reactions to headlines and instead focus on exploiting technical dislocations in commodities and interest rate spreads that tend to lag behind political changes. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now