(Bloomberg) -- There's no reason for the Federal Reserve to remain dovish if the world's two largest economies reach a trade deal, according to David Woo, head of global rates and currency research at Bank of America Merrill Lynch.
The New York-based strategist is “generally optimistic” about a truce between the U.S. and China because Donald Trump and his Chinese counterpart, Xi Jinping, would pay a political price if talks falter.
“They're going to choose a win-win situation as opposed to a lose-lose situation,” he said on Bloomberg TV. “The market has been comatose by a flip-flopping Fed.”
Woo, who turned bullish on developing-nation assets earlier in the year, said he likes emerging-market Asia as a trade deal would release pent-up U.S. demand for imports that benefit supply chains across the continent.
Read more: Trump Says No Rush for China Deal as Tariffs Rise, Talks Resume
Yet time is of the essence. If there's no agreement over the weekend, Beijing will probably be forced to retaliate, according to Woo. In that case, Chinese authorities may resort to weakening the currency by 2% to 3%, he said.
To contact the reporter on this story: Ben Bartenstein in New York at bbartenstei3@bloomberg.net
To contact the editors responsible for this story: Julia Leite at jleite3@bloomberg.net, Alec D.B. McCabe
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