Recent US-China talks ended with separate readouts, and markets are waiting for a firm trade deal. Both sides used a cooperative tone and referred to a “Constructive Strategic Stability Relationship” and avoiding a “Thucydides Trap”.
The US invited President Xi to a state visit in September. Markets are watching for changes to US tariffs, limits on advanced semiconductor exports, and China’s rare earth export controls.
China’s exports are up 14.5% year-to-date year on year. Shipments to ASEAN and the EU are up by around 20%.
Exports to the US are down 10.9% year-to-date, and the US is China’s third-largest export destination. If exports to the US rebound, this could add about 1.1% to total exports.
Stronger exports and sector-based agreements are linked to firmer growth expectations. This has put modest upward pressure on long-dated Chinese government bond yields versus the short end.
Improved export performance could also support the labour market. That would add to the current improvement in domestic economic momentum.
We are seeing a more constructive tone in US-China relations, which is shifting market expectations for Chinese growth. This builds on the positive diplomatic groundwork we observed throughout 2025. Recent data for the first quarter of 2026, showing China’s GDP grew by a surprising 5.1%, lends weight to this improving economic picture.
This outlook suggests we should consider positions that benefit from a stronger Chinese Yuan. Buying call options on the CNY against the US dollar offers a way to capitalize on this potential appreciation while limiting downside risk. With the USD/CNY exchange rate having stabilized around 7.18 recently, a diplomatic breakthrough could easily push it lower.
We can also look at equity derivatives, as any easing of US tariffs would directly benefit Chinese manufacturers and technology firms. Futures on indices like the FTSE China A50 appear attractive, especially as we have just seen China’s exports post an 11% year-over-year gain for April 2026, beating market consensus. A recovery in shipments to the US, which have lagged, would provide a significant additional boost.
The prospect of stronger growth is also putting upward pressure on long-term Chinese government bond yields. We saw the 10-year yield firm up from 2.6% to 2.8% in the latter half of 2025, and it has held those levels. This environment suggests setting up trades that profit from a steepening yield curve, anticipating that long-term rates will rise more than short-term ones.
