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Markets guarded after US-China talks, await more details

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Investors hope for robust deal, but prepare for more

uncertainty

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Chinese equities rise, US stock futures dip in early

reaction

By Saqib Iqbal Ahmed and Ankur Banerjee

NEW YORK/SINGAPORE, June 11 (Reuters) - The latest trade

truce between China and the United States offered investors the

hope of an eventual deal that the feuding superpowers can live

with, though the possibility of another tariff flare-up remained

a risk for markets.

The muted market reaction told its own story, as U.S. and

Chinese officials ended two days of talks in London on Tuesday

with pledges to revive an agreement struck last month in Geneva,

and remove China's export restrictions on rare earths - a

sticking point in that deal.

The guarded welcome from currency and stock investors shows

that while the meeting ended in a truce, markets had also hoped

for more and the lack of details means uncertainty is likely to

remain high.

The main positive takeaway was the talks indicated

pragmatism on both sides, analysts said.

"This is positive news to the market. At least now there's a

bottom line that neither side is willing to cross," said Mark

Dong, co-founder of Minority Asset Management in Hong Kong.

Chinese stocks rose to near three-week

highs, while U.S. stock futures were a touch

lower. The U.S. dollar edged higher and China's yuan

was steady.

"For now, as long as the headlines of talks between the two

parties remain constructive, risk assets should remain

supported," said Chris Weston, head of research at Australian

broker Pepperstone.

"The devil will be in the details but the lack of reaction

suggests this outcome was fully expected."

Markets plunged after U.S. President Donald 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, lifting stocks.

The benchmark S&P 500 index has risen 6.5% since then

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 be back at the

April 2 level.

TARIFF REPRIEVE

The latest plan to re-ink a deal might remove some of the

extreme gloom scenarios for markets, but investors would need

more concrete steps to fully rejoice.

The broad impact of the sweeping duties in a trade war that

could bring $600 billion in two-way trade to a standstill is

being felt in both economies. Economists expect 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 such 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 the reprieve from tariffs that have

hit its exports as the country battles deep deflationary

pressures and weak consumption.

Moreover, while the ultimate impact on U.S. inflation and

the jobs market from the trade war remains to be seen, tariffs

have hammered U.S. business and household confidence.

That has left the dollar under pressure, down over 8%

against major rivals this year, as investors worry about the

U.S. economy and fiscal health. Trump's big bill to cut taxes

and spend more has exacerbated worries about U.S. debt.

Right now, the challenges facing Trump are aplenty,

including a spectacular fallout with the world's richest person,

Elon Musk, a tax bill that is under intense scrutiny and street

protests in Los Angeles over his administration's immigration

policy.

That raises the stakes for a successful negotiation with

China, and investors aren't ready to make hard bets on the

outcome just yet.