Markets continued to give a mixed response to President Trump's unexpected weekend tweet, which threatened higher import tariffs on Chinese goods. Having opened 1.6% lower, the S&P 500 ended the day just 0.5% lower on Monday. That was a far more muted reaction than in China, where the CSI 300 fell 5.6%, the largest daily fall since February 2016. Commodity markets also reacted strongly, with soybean and corn futures slumping on worries that China could impede purchases of US grains. The Bloomberg Grains Sub Index Total Return fell to its lowest level since 1977.

The confused market reaction reflected conflicting views over whether Trump's tweet was merely a negotiating tactic, or a sign that talks with China had reached an impasse. Investors took some comfort from the fact that China's top trade negotiator, Liu He, did not delay a planned trip to the US on May 9-10 for talks.

But while we still expect a deal to reduce tariffs, uncertainty over the process has increased. Time for negotiation is limited ahead of the Friday deadline, at which President Trump indicated tariffs will be increased. Three broad scenarios remain possible, as outlined in our latest Risk Radar publication.