The first face-to-face talks between U.S. officials and their Chinese counterparts since both sides declared a truce in their phoney trade war kicked off in Beijing on Monday, and both sides are playing very nice.
For investors in Asia, this has brought a welcome warm breeze in mid-winter. Japanese shares were the biggest beneficiaries on Monday, with both the Nikkei 225 and the broader Topix up 2.8%.
The feel-good factor was following through from New York trading on Friday, when the Dow and the S&P 500 both gained close to 3.5%.
Markets in South Korea and Singapore both advanced 1.4%. By comparison, the gains were more muted in China, with the CSI 300 up 0.6% and Hong Kong's Hang Seng up 0.8%. But Shanghai stocks had already run up 2% on Friday after China's central bank eased policy.
The People's Bank of China cut reserve requirements for banks by 100 basis points, which frees up 1.5 trillion yuan ($218 billion), about half of which should go toward new lending.
It's the largest out of five cuts since this time last year in the amount of cash banks must keep on hand. Economists expect further easing, with up to four 100 basis point reserve cuts in the offing in 2019.
China is seen as having suffered the most so far as a result of the higher tariffs both sides have imposed. It has limited room to maneuver, since China sends far more goods in ships to the United States than move in the other direction.
But the truth is far more complex. This isn't a "war" in which either side sacrifices blood and toil to gain ground. It's a series of higher taxes imposed, eventually, on consumers that is disrupting supply networks on either side of the Pacific.
Foreign Minister Lu Kang promises the talks will be "positive and constructive" -- standard diplomat-speak for "we're having talks."
That's a victory in itself, of course, the first détente since the 90-day truce announced in December. Lu is completely correct in his assertion that no one wins from these barriers to free trade.
"From the beginning we have believed that China-U.S. trade friction is not a positive situation for either country or the world economy," Wu told reporters at a press conference on the talks, according to Reuters.
Just ask U.S. soybean farmers if they're enjoying the results. Meanwhile, the Chinese camp is stressing the earnestness that China is showing.
"China has the good faith, on the basis of mutual respect and equality, to resolve the bilateral trade frictions," Lu said.
It's likely that these talks will set the stage for more talks. They're expected to focus on the technical side of how negotiations will progress.
The talks, at this stage at a fairly junior level, will run through Tuesday. Deputy U.S. Trade Representative Jeffrey Gerrish is leading the U.S. contingent, which includes White House officials and undersecretaries from the U.S. Departments of Agriculture, Commerce, Energy and Treasury.
It's not totally clear what China wants out of the talks, or what's been discussed so far. More than likely, China will "give up" concessions it has already agreed to make.
President Xi Jinping may use the outcome to force greater reform on the Chinese economy, attempting to rationalize the bloated state-owned enterprises devoted to heavy industry, in favor of the service economy that's evolving.
The White House is seeking far-reaching structural reforms in China's economy. Top of the list of concerns are the protection of U.S. intellectual property, the end of the forced transfer of technology from U.S. companies to Chinese joint-venture partners, and greater access to the 48 Chinese industries and sectors where foreign investment is either restricted or prohibited.
Beijing has been surprised by the broad scope of U.S. tariff hikes. But it is also battling pessimistic sentiment, with the economy anecdotally slowing far faster than the official data reveal.
Large banks in China must retain the equivalent of 14.5% in assets in reserve, while small banks must keep 12.5% on hold, before this 100 basis point cut.
The effects will take time to trickle into the economy, likely making themselves felt only in around six months.
Premier Li Keqiang has indicated that the government will take further steps to bolster the economy. The central government has cut household taxes, is offering export-tax rebates, and has pushed VAT/fee reductions for corporates.
The foreign minister, Lu, is talking a good game that China feels no pain.
"China's development has ample tenacity and huge potential," Lu said at the press conference. "We have firm confidence in the strong long-term fundamentals of the Chinese economy."
Trump is equally bullish on prospects for his "side," apparently keeping score by stock-market movements -- although he ignores the recent bear market on Wall Street.
"The China talks are going very well," he said. "I really believe they want to make a deal."
China is pretty likely to deliver more goodies in the lead-up to the lunar new year, which this year lands on February 5.
Most of China takes two weeks off to celebrate. So officials and companies alike try to wrap up a raft of projects to instill a feel-good holiday glow.
Last year, the PBOC launched a hefty 400-billion-yuan stimulus to spur medium-term loans from banks. There's also the likelihood Beijing will directly inject stimulus into the economy, as well.
China responded to the 2008 credit crunch with an enormous stimulus package in 2009, worth 4 trillion yuan (US$582 billion). It won't go nearly that far, but will splash the cash if it's truly concerned about economic prospects.
While China appears to be suffering particularly sharply from the effects of tariffs, and threatened tariffs, the U.S. economy is also slowing down.
December figures showed sharp declines in consumer confidence and manufacturing activity. It's become a parlor game predicting when the next U.S. economy will start (the bets are on for next year).
The bilateral intricacies of global trade are perhaps best illustrated by the woes facing Apple (AAPL) . The largest U.S. company by market capitalization has issued its first revenue warning [in 16 years -- as a result of poor sales in China.
Trump says Apple is a "great company" that is "going to be fine." But his answer to the company's plight has been to tell CEO Tim Cook that he should be building the company's iPhones and iPads on U.S. soil.
Tech analysts say that would be the nail in Apple's coffin, faced as it is already with cheaper competitors, not least among them Shenzhen-based Huawei Technologies, now the largest smartphone seller in the world.
I'm sure both sides will declare themselves winners out of these talks. You can be sure there will be no talk of surrender in the war.
"If China was going to raise the white flag, it would have done it already," the Global Times, the newspaper mouthpiece of the Communist Party, said on Sunday an editorial.