Despite repeated attempts from US policymakers to talk up the prospects for a breakthrough in trade negotiations with Chinese officials in Washington later this week, markets remain sceptical as to whether such an outcome is realistic.
There are concerns that significant differences in opinion remain between the two sides in the year-long trade dispute, particularly in areas such as intellectual property theft and state subsidies.
"Our base-case remains for little meaningful resolution from these talks as reports suggest the US administration is divided over the potential for a partial deal," Kaixin Owyong, markets economist at the National Australia Bank, said in a note.
"A best-case scenario would be an agreement by China to purchase more US goods and the US to extend the time-frame when higher tariffs are due, with the two sides agreeing to continue dialogue."
On Monday, White House economic adviser Larry Kudlow expressed renewed optimism that progress towards a lasting trade deal could be reached, telling reporters the Trump administration was open to the idea of a short-term deal should structural issues such as market access for US companies and subsidies for Chinese state-owned enterprises be addressed at high-level trade talks scheduled on Thursday and Friday this week.
"We are open to a number of ideas, some may be short-term, some may be long-term," Mr Kudlow said. "It's essential that the structural issues that we've talked about for two years since I've been around... that stuff's gotta get solved."
US President Donald Trump also expressed cautious optimism that talks in Washington could deliver a breakthrough in the dispute.
"We think there's a chance we could do something very substantial," Mr Trump said on Monday, adding that he would "much prefer a big deal and I think that's what we're shooting for".
"Can something happen? I guess, maybe. Who knows? But I think it's probably unlikely," he said.
Despite goodwill gestures from both sides in the lead up to the trade talks, such as slight delays to scheduled US tariff increases and increased purchases of US agricultural products by China, fresh doubts about a major breakthrough resurfaced on Monday with China's Commerce Ministry telling Fox News that changes to protect intellectual property laws were "not on the table and never will be".
That followed separate reports from Bloomberg over the weekend that China would not deliver "commitments on reforming Chinese industrial policy" or "government subsidies" during the trade talks, according to sources.
The gradual weakening of US data, a falling stock market and the beginning of an impeachment investigation against President Trump could change the political calculations of the administration.TD Securities strategists Sacha Tihanyi and Oscar Munoz
While such an outcome suggests markets are rightfully sceptical about the prospects for a de-escalation in the trade dispute, Sacha Tihanyi and Oscar Munoz, strategists at TD Securities, told clients an interim deal may still be possible given the economic, financial and political damage being felt by the Trump administration.
"While the odds of a comprehensive deal that tackles lingering structural issues remain low, the gradual weakening of US data, a falling stock market and the beginning of an impeachment investigation against President Trump could change the political calculations of the administration," they said.
TD Securities said recent weakness in the US manufacturing sector, coupled with downbeat demand for US agricultural products, could see Mr Trump's tough stance towards China soften given the impact on his supporter base.
"This would open the door for additional talks in coming months, increasing the possibility of an interim deal," it said.
AMP Capital head of investment strategy and chief economist Shane Oliver said that while it's "wishful thinking" to believe this week's talks will deliver a lasting trade deal, he thinks an interim deal could be in the offing.
"The pressure on both the US and China is now intense with the trade war dragging on both economies and the US economy at increasing risk of recession which would be disastrous for President Trump's re-election prospects," Mr Oliver said in a note.
"As such, there is a reasonable chance of some sort of interim deal that involves China making some commitments around intellectual property, knowledge transfer and the purchase of US agricultural products and the US freezing tariffs at current levels."
If the more difficult aspects of the trade deal are postponed for a later date, Mr Oliver said that while this would take some pressure off the global economy, it's unlikely to help improve investor risk appetite beyond the short-term given it won't address longer-term uncertainty.
- SMH/The Age