As the week begins, trade negotiators from the United States and China are set to meet in Malaysia ahead of the Oct. 30 meeting between President Trump and Xi Jinping. According to news reports, both sides have reached a framework agreement with optimism around the possibility of a comprehensive trade agreement being reached by Thursday. The potential outcomes from these talks include the cancellation or postponement of the recently announced 100% tariffs scheduled to take effect on Nov. 1, expedited issuance of rare-earth export licenses by China for regular non-military use under new regulations, and/or an extension of the current reciprocal tariffs set to expire on Nov. 10 to allow further negotiations.

Meanwhile, US and South Korean leaders are scheduled to meet on the sidelines of the APEC summit on Oct. 29. Macro investors will be closely watching for confirmation and details of Seoul’s proposed $350 billion investment deal, which was agreed upon in exchange for lower tariffs. However, recent news suggests a potential gridlock due to funding disagreements. Some reports point to a direct cash funding of $150-250 billion over eight years, with the rest being in loans. This direct cash funding, equivalent to 0.8-1.3% of GDP per annum in outflows, would be an added drag on Korea’s already fragile balance of payments.

The ongoing uncertainty and the won’s elevated correlations to the weakening yen are weighing on the currencies, sparking an uptick in verbal jawboning from the authorities. With USDKRW trading 1.5 standard deviations / 3.5% richer vs. UBS model estimate of 1390, the bar for a positive surprise is admittedly low.

This week’s trade talks and investment deal between the US and its Asian partners hold significant implications for the region’s economies and currencies. The outcome of these negotiations will likely have a profound impact on the US-China trade relationship, as well as the Korean won and other regional currencies. As always, it is important to stay informed and up-to-date on the latest developments in this rapidly evolving situation.