Trump-Xi Summit likely to deescalate trade tensions as Republicans prepare for US Presidential Election 2020, says Scotiabank

The Trump-Xi Summit is expected to deescalate the two nation’s trade tensions to some extent as Republicans are set to prepare for the US Presidential Election of 2020 after losing control of the House, according to the latest research report from Scotiabank.

Former US Treasury Secretary Hank Paulson on Wednesday warned of an "Economic Iron Curtain" dividing the world if the US and China fail to resolve strategic differences. In addition, China granted 18 trademarks to companies linked to US President Donald Trump and his daughter Ivanka Trump over the last two months according to Fox Business, which could raise questions about potential conflicts of interest in the US.

The 10-year UST yield rises on the sound US fundamentals and the Fed’s hawkish stance amid risk appetite. The 10-year UST yield finally reached a certain elevated level (i.e. 3.20 percent in early October but should be higher now as the market has get used to the 3.20 percent level), it will then lead to a massive sell-off in US stock markets, dent market sentiment and undermine EM Asian currencies, the report added.

The 10-year UST yield falls along with dropping USD/JPY amid intensified risk aversion. Risk sentiment stabilizes and improves gradually with a lower 10-year UST yield, bringing a temporary relief to risky assets. EM Asian currencies particularly the KRW, TWD, SGD and THB will rebound amid improved risk sentiment.

"Meanwhile, we stay cautious as the Democrat-led House that is seen to back the Trump administration’s trade war with China could scrutinize any future trade deals with China more closely," the report commented.