Investing.com - Some institutional investors may turn increasingly cautious despite improved hopes for a thawing in trade tensions between the U.S. and China, according to analysts at Jefferies.
In a note to clients, the analysts led by Shujin Chen flagged that confusion has particularly persisted around the current U.S. tariff rate on China following Monday’s announcement of a trade agreement between the two countries.
Washington agreed to substantially cut its elevated tariffs on Beijing to 30%, after they were raised to at least 145% by President Donald Trump. China, meanwhile, said it would slash its levies to 10% from a retaliatory level of 125%. Both countries also said they would suspend the tariffs for 90 days.
More trade negotiations are planned between the two, while both sides may conduct working-level consultations on relevant economic and trade issues.
Crucially, the analysts noted that U.S. tariffs on Chinese goods now combine a 10% baseline levy with prior duties of 20% slapped on Beijing over its alleged role in the flow of the illegal drug fentanyl.
However, other estimates, which factor in extra levies imposed during Trump first term that cover around two-thirds of imports from China and remain in effect, place the average level of the duties at 40% to 50%.
A "more precise estimate" of the figure would stand at "49.5%", the analysts said, citing data from U.S. think tank The Peterson Institute for International Economics.
The Jefferies analysts said they now expect an "ultra-short-term market rally" driven by decreased pessimism around U.S.-China trade relations, higher earnings forecasts for export-focused companies, and growing investor confidence in China.
However, they warned that institutional investors are "becoming cautious" as markets focus more on changes in policy expectations rather than "fundamentals", or underlying factors that underpin stock valuations.
Stock market futures pointed broadly lower on Tuesday after equities on Wall Street surged in the prior session.