Editor's note: Jimmy Zhu is the chief economist at Fullerton Research. The article reflects the author's opinions, and not necessarily the views of CGTN. 

Recently, risk assets, such as equities and crude oil rallied overnight in NY Stock Exchange and extended into Asian markets as some of the earlier fears eased. For now, it's too early to call for a rebound in the stock market. It's the price movements of the past 12 months that have guided the traders to action while fundamentals remain weak.

Chinese Vice Premier Liu He and U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin held a phone conversation on Tuesday morning and agreed to meet in early October for another round of negotiations in Washington, according to a statement from China's Commerce Ministry. After the announcement, offshore yuan gained more than 200 pips within minutes to 7.1229 versus the greenback, and Asian equities rallied and those safe heavens such as gold, Japanese yen fell sharply.

The return to negotiation fuels the expectation that there could be some resolutions to the recent escalating trade war, when global economy has been suffering a recession. Capital market welcomes such news development in a period when negative news always fully occupies the air space, but the reality always hurts.

Over the past year, global market has been moving closely with the development of the Sino-U.S. trade war and the patterns actually kept repeating. It has been always the case that market started rallying when both sides agree to meet, but followed by a sell-off after Donald Trump announced his disagreement on the negotiation terms.

In fact, the Sino-U.S. trade friction has been kept escalating with some rounds of truce. Looking back Trump's pattern in dealing with trade frictions over the past months, he always threats to impose a higher tariff if the other party doesn't follow exactly what he wants, which could be his preferred tactic when he was a business man. He likes bargaining and never believes mutual benefit.

So far, nothing has changed. The possibility remains low for him to change the mindset of reaching a deal benefits America. In his mind, the U.S. is the winner of the trade war, but recent data shows that American manufacturing companies are suffering a contraction. He often talks that the U.S. labor market is strong, but the ISM employment index shows that many business owners have stopped expanding. In recent months the U.S. stocks have been sold off but he continues to claim that the financial market is healthy.

If he can't see the severity of the trade war, then the market shouldn't expect too much from the upcoming meetings. The broad gains in the stock market today are mainly driven by the speculative traders, rather by those investors who intend to hold the positions for some time.

Experienced traders know that when the market has been extremely depressed in past weeks, prices can easily soar. Traders are simply taking advantage of such opportunity, especially when safe-haven assets, such as gold and treasuries, are too expensive to enter. Investors shouldn't be fooled by such price fluctuations and begin to expect that some complicated problems to be solved overnight.

Within this month, global financial market is expected to be even more volatile, as Trump may continue to pressure concerned parties to implement what he wants before the trade negotiation in October.

The Fed's September meeting is just two weeks away, and the outcome of the decision may disappoint Trump and some of the market participants, because a 50 bps rate cut is not likely to happen. Even a 25 bps rate cut may trigger another round of sell off in equities and other risk assets.

Even if the Fed delivers a 50 bps rate cut, Trump may take the rate cut as his weapon in the coming trade negotiation. In his mind, aggressive rate cut means economy will start to pick up and dollar to weaken, as a result, he will be less worried about the negative impacts of the trade war.

When the U.S. labor market starts to show signs of deterioration and the stock market is more vulnerable than it has been for years, it is wise for Trump to return to the negotiating table with some sincerity. Otherwise, if there is a major slowdown in the U.S. economy, his approval ratings will plummet.

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