Kudlow said the US tariffs will remain in place while negotiations continue and there is a “strong possibility” that Trump will meet Chinese President Xi Jinping at a G20 summit in Japan in late-June.
“Our base case remains that a trade deal between the United States and China is likely. But news flow today [Monday] suggests this could take more time and is unlikely to be concluded until late-June,” said John Woods, Hong Kong-based chief investment officer of Asia Pacific at Credit Suisse.
Others were more pessimistic.
“Our base case is for limited progress and Chinese retaliation. We see a significant risk for all Chinese imports to be subject to tariffs over the next month or so,” said Michael Hanson, head of global macro strategy at TD Securities.
“The market reaction will ultimately depend on whether China and the US continue to negotiate, whether the remaining $325bn of US imports from China also get tariffed, how China retaliates, and what happens to the [section] 232 auto tariffs.”
Under that scenario, the renminbi is likely to fall 5%-6% against the US dollar in the next three months, said Hanson, as a shock absorber to the economic impact of heavier tariffs.
The offshore Chinese yuan fell to its lowest levels in more than four months at 6.88 to the dollar. It last stood down 0.5% at 6.852 per dollar.
The other major currencies were relatively calm, with the safe-haven yen still supported but not aggressively so. The dollar was holding at ¥109.75, down 0.2% on the day and just above a 14-week trough of 109.46.
The euro was steady at $1.1233, while the dollar was little changed against a basket of currencies at 97.302.
“If there is a lack of progress [in the US-China talks] over the coming weeks, Asian currencies will come under further pressure,” noted Khoon Goh, head of Asia research at ANZ Research, while adding that his team does not expect the yuan will break the psychological seven-per-dollar level.
“While we hope for the best, our baseline case is now for the United States and China to fail to reach a deal, meaning tariffs will get raised on the remainder of Chinese exports to the United States.”
In commodity markets, oil prices remained a relatively tight range, with the US crude futures last down 0.1% at $61.62 a barrel, while Brent crude futures gained 0.3% at $70.81.
Spot gold eased 0.1% to $1,283.61 per ounce.
Digital currencies maintained most of their big gains made at the weekend.
Bitcoin jumped more than 10% on Saturday and marked its nine-month high of $7,585.00 on Sunday before paring the gains. It last quoted at $7069.76, up 1.4% on the day.