Xi-Trump phone conversation raises the probability of a trade war ceasefire at the G20 meeting. We now see slightly more than 50% chance of this happening.

US tech companies warn their competitiveness will be hurt by higher tariffs. Huawei puts price tag on US export ban: USD30bn.

CNY and equity markets get a lift from trade hopes and dovish Fed.

Trump makes a small blink with phone call to Xi

The coming week will reveal if we will have another ceasefire in the trade war and a resumption of trade talks - or if we are heading towards renewed escalation. This week US President Donald Trump and his Chinese counterpart Xi Jinping talked on the phone and agreed to meet in Osaka next week on the sidelines of the G20 Summit. The meeting has been expected for some time but China had not officially confirmed it would take place.

Trump broke the news in a tweet saying he had a ‘very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan'. According to SCMP Trump initiated the phone call. Chinese news media Xinhua confirmed the call and quoted Xi as saying that ‘the two sides should...push forward the China-U.S. relationship featuring coordination, cooperation and stability on the basis of mutual respect and mutual benefit'. He also stressed that ‘China hopes the US can treat Chinese firms in a fair manner' in a clear reference to the US export ban on Huawei.

On Thursday China said it hoped the US would bring a problem-solving attitude to the trade talks in Japan and repeated three points where China cannot compromise: 1) complete roll-back of US tariffs to where they were before the trade war, 2) the scale of goods purchases from US by China and 3) the need for a balanced text.

Lighthizer this week said in a hearing that he believed Chinese negotiators had gone beyond their mandate in the trade negotiations, which was the reason why they had backtracked on certain issues. He added that ‘my hope is we can get back on track'. In a further sign that Trump would like to get the talks started again, there were reports of debate inside the White House on whether a speech by US Vice President Mike Pence next week should exclude sanctions on Chinese officials related to the Xinjiang internment camps. The US Treasury Secretary Stephen Mnuchin has supposedly warned on this as it could obstruct a restart of trade talks.

Comment. We see Trump's phone call to Xi as a small blink in the trade war. It reveals that he is keen on meeting with Xi at the G20, which China had not confirmed before the call. We now see a higher than 50% probability that the meeting will end with a ceasefire and resumption of trade talks. The negotiations will still be difficult, though, as we believe China will stand firm on the three ‘red lines' they have highlighted. Xi may also condition new talks on a withdrawal of the export ban on Huawei, which is a sharp attack on Chinese technology and seen as an attempt to contain China. If Trump fails to withdraw the export ban, China could retaliate through its ‘unreliable foreign entities' list.

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