Investors are optimistic that the Wednesday kickoff of the US-China trade summit, featuring President Trump and Chinese President Xi Jinping in Beijing, will result in a durable deal. The current hope is for an agreement currently labeled as a “Board of Trade” framework. Such a pact would create a trade mechanism in which each side could reduce tariffs on roughly $30 billion in non-sensitive goods.The positive market reaction leading into the China trade summit has merit. Equity investors want more certainty on trade; thus, even a handshake and in-person trade dialogue between the US and China is positive. However, before anticipating a deal and market rally, there are a few considerations worth discussing.The Supreme Court struck down Trump’s tariff authority earlier this year, forcing the administration to rebuild its trade toolkit by relying on slower and less effective mechanisms. Bottom line, Trump has less trade firepower than he did in 2025, and China knows it.Goldman Sachs claims the base case isn’t a deal, it’s a delay. Their economists see the most likely outcome as both sides pulling back from their most aggressive postures and extending the existing tariff pause, possibly indefinitely. That’s more akin to a ceasefire than a lasting trade agreement.On August 12th, the pause on the 90-day China tariffs will end. If no durable trade framework is in place by then, tariff rates could revert to levels seen on April 2nd, 2025. That is a bearish scenario that markets are not pricing in today.The China-US trade discussions will almost certainly create good optics. The question, however, is whether they will result in any meaningful resolution, thereby allowing investors to sleep more easily.What To Watch TodayPPIFollowing the slightly higher-than-expected CPI, PPI was well above expectations, rising 1.4% versus the consensus estimate of 0.5%. The core PPI, excluding food and energy, was up 1.0%, well above the 0.4% estimate. The graph below, courtesy of Bloomberg, breaks down PPI into its major components. While fuels and related energy products account for a significant share of the increase, the other components have recently been trending higher.The bond market reaction was muted to both the CPI and PPI news. In fact, bond yields fell slightly after the announcement. This is likely occurring for two reasons. First, longer-term yields have risen to levels not far from where they stood when inflation was much higher in 2022. Second, the market is betting that the surge in prices of some goods is largely driven by the Iranian conflict and is transitory. To that point, there are disinflationary factors gaining strength, such as tariff removals and reductions, and the productivity benefits of AI.Tweet of the DayOriginal Post