The outlook for a trade settlement with China improved on Sunday, with President Trump announcing a postponement of an increase in tariffs. This comes after progress during recent negotiations in Washington and Beijing. A joint memo of understanding is underway that would cover controversial issues including the theft of U.S. intellectual property and foreign investment in China.

The key to resolving the trade differences is whether China’s concessions will be substantial and concrete enough for U.S. negotiators. The U.S. wants specific and enforceable provisions before agreeing to lift tariffs. Satisfying the U.S. is not going to be easy and negotiations may drag on for some time. Meanwhile, the current $250 billion of tariffs on Chinese goods will remain.

While economic data out of China may weaken further in 2019 as the tariffs continue to weigh on its economy, Chinese stimulus measures, combined with a possible end, or at the very least non-escalation, of the tariffs, could translate into a sizeable uptick in the Chinese economy later in 2019. This could help overseas equities and more cyclical sectors such as energy, materials and industrials. Chinese stocks have done well in 2019, as the chart below shows.