US-China trade truce leaves investors none the wiser

By Saqib Iqbal Ahmed and Ankur Banerjee

NEW YORK/SINGAPORE (Reuters) -The latest trade truce between China and the United States offers investors hope that the two superpowers can reach a lasting resolution and prevent further market disruption, but the absence of detailed terms leaves room for potential future tariff conflicts.

President Donald Trump said on Wednesday the U.S. deal with China is done, with Beijing to supply magnets and rare earth minerals while Washington will allow Chinese students in U.S. colleges and universities.

China's Vice Commerce Minister Li Chenggang said on Tuesday that the Chinese and U.S. negotiating teams had agreed a framework on trade after two days of talks, and would take that back to their leaders.

A White House official said the agreement allows the U.S. to charge a 55% tariff on imported Chinese goods.

Wall Street stocks edged down, while the dollar slipped. Chinese stocks inched up to near three-week highs.

The guarded reaction from currency and stock investors showed that while the meeting ended in a truce, markets had hoped for more. The lack of details means uncertainty is likely to remain high.

"The details are scarce, and both sides are claiming that their needs were satisfied ... but this issue is not close to being settled," Chris Grisanti, MAI Capital Management's chief market strategist, said.

The main positive takeaway was the talks indicated pragmatism on both sides, analysts said. While the outcome of the talks supported riskier assets, investors appeared to remain vigilant.

"The devil is in the details... The other big piece of news is the U.S. and China seem to have a framework for further discussions, and that contradicts a statement of 'it's a done deal'," said Oliver Pursche, senior vice president at Wealthspire Advisors, in New York.

With most negotiations incomplete as Trump's July 8 deadline for a 90-day pause on tariffs on other U.S. trading partners approaches, investors remain watchful.

Markets plunged after Trump's "Liberation Day" tariff announcement on April 2 as investors worried about an impending recession, but those fears eased as Trump rolled back most of the punitive tariffs.

The benchmark S&P 500 index has risen more than 20% from its April lows, and is close to reclaiming a record high. Chinese stocks have underperformed as investors fret over a persistently weak economy, but have nonetheless recouped losses to return to the April 2 level.

TARIFF REPRIEVE

U.S. Commerce Secretary Howard Lutnick said the latest plan to ink a deal put "meat on the bones" of an agreement reached last month in Geneva to ease bilateral retaliatory tariffs that had reached crushing triple-digit levels.

While this might remove some of the extreme gloom scenarios for markets, investors would need more concrete steps to fully rejoice.

The broad impact of the duties in a trade war that could bring $600 billion in two-way trade to a standstill is being felt in both economies. Economists say the damage from the tit-for-tat duties and volatility in financial markets would be an overhang on the global economy for months.

Phillip Wool, chief research officer and lead portfolio manager at Rayliant Global Advisors, said investors bidding stocks back to record highs were significantly underestimating the damage already caused by uncertainty this year.

"I’m feeling more cautious and opportunistic than unconditionally bullish at this moment," he said. "If any major deal is reached, we could see stocks rally in response, but my sense is that’s more emotion at this point, and the euphoria could be short-lived as new risks materialize.”

China's economy needs a reprieve from tariffs that have hit its exports as the country battles deep deflationary pressures and weak consumption.

The ultimate trade war impact on U.S. inflation and the jobs market remains to be seen, but tariffs have hammered U.S. business and household confidence.

That has pushed the dollar down more than 8% against other major currencies this year, as investors worry about the U.S. economy and fiscal health. A Republican bill to cut taxes and spend more has exacerbated worries about U.S. debt.

Other challenges facing Trump further raise the stakes for a successful negotiation with China. They include a spectacular fallout with the world's richest person, Elon Musk, intense scrutiny of his tax bill and street protests in Los Angeles over his administration's immigration policy.

(Reporting by Ankur Banerjee and Rae Wee in Singapore, Wayne Cole in Sydney, Samuel Shen in Shanghai, Saqib Iqbal Ahmed, Laura Matthews, Caroline Valetkevitch and Suzanne McGee in New York; Editing by Megan Davies, Vidya Ranganathan, Shri Navaratnam and Nia Williams)