China-US Economic and Trade Talks: Bringing New Hope to the Financial Sector

From July 27th to 30th, the Chinese side's lead negotiator, Vice Premier He Lifeng, and the US side's lead negotiator, US Treasury Secretary Mnuchin and Trade Representative Gregory, held the China-US economic and trade talks in Stockholm, Sweden. This round of talks reached important consensus. Both sides agreed to extend the suspension of the 24% reciprocal tariffs imposed by the US and the countermeasures taken by China for 90 days. In addition, the US also reached trade agreements with Japan and the European Union, imposing a 15% tariff on goods imported from Japan and the EU. This news is like a stone dropped into a pond, causing ripples that spread far and wide and have a broad and profound impact on the financial sector.

From the perspective of exchange rates, the RMB exchange rate is expected to receive strong support. The improvement of Sino-US economic relations has strengthened market confidence in China's economic prospects. Previously, trade frictions brought certain uncertainties to the RMB exchange rate, but the outcomes of this meeting have sent out positive signals. Market expectations are that Chinese export enterprises will face a more favorable trading environment, with export volumes possibly expanding, trade surpluses expected to further increase, and thus attracting more foreign capital inflows. Based on past experience, when there are positive changes in Sino-US economic relations, the RMB often shows an appreciation trend. Capital inflows will increase the demand for the RMB, pushing up the RMB exchange rate, and the demand for onshore and offshore RMB assets will also significantly rise.

In the capital market, both the Chinese A-share market and the Chinese companies listed in the US stock market will remain positive. The easing of trade tensions has reduced the uncertainty risks in business operations, and investors have become more optimistic about the future profits of enterprises, thereby enhancing the risk appetite of the market. When the market risk appetite rises, funds will be more inclined to flow into the stock market, driving stock prices up. For the A-share market, the stocks of export-oriented enterprises may receive more attention from investors, as the extension of tariffs has reduced the enterprise costs and enhanced the competitiveness of products, and strengthened the profit expectations. The Chinese companies listed in the US stock market will also gain more favor from investors due to the improvement of trade environments in various countries, and their stock prices are expected to recover. At the same time, the bond market will also be affected. As market risk appetite increases, there may be a certain degree of diversion of funds in the bond market. However, from another perspective, stable economic and trade relations can help reduce the risk of bond default and have a positive impact on the stable development of the bond market in the long term.

From the perspective of global capital flows, the outcomes of the China-US economic and trade talks have prompted global capital to re-examine asset allocation. As the two largest economies in the world, the stability of the economic relations between China and the US will reduce the uncertainty of the global economy. The funds that originally flowed into safe-haven assets, such as gold and the Japanese yen, due to trade frictions, will reconsider reallocating to risky assets. Emerging market countries, especially China, will become favored destinations for global capital due to their economic growth potential and market size advantages. The large inflow of foreign capital into the Chinese market will further promote the prosperity of the financial market and enhance market vitality.

This round of China-US economic and trade talks has had a significant impact on the financial sector, bringing more stability and development opportunities to the financial market. Of course, we also need to remain rational and recognize that the 90-day extension of tariffs has certain uncertainties. We will need to pay close attention to the continuous development of the economic and trade relations between the two sides and the specific implementation of policies in the future. However, in any case, the outcomes of this round of talks have provided a strong boost for the development of the financial sector, and it is worthy of active attention and anticipation from all market participants.