Investing.com-- Citi analysts said on Monday that the recent trade tariff reductions between the U.S. and China were even more positive than expected, with Chinese stocks likely to clock strong gains on the move.

The deescalation now heralds a much smaller impact on China’s exports and gross domestic product, Citi said, and that further negotiations could bring even more reductions- especially a 20% levy linked to China’s alleged role in the fentanyl trade.

Citi reiterated its positive view on Hong Kong and Chinese equities following the deescalation, citing improving relations with the U.S. and inexpensive local valuations.

“The tariff reduction magnitudes were sharp and encouraging; we think the reductions were likely more than the market expected. This should inject positive sentiment into the HK/PRC equities,” Citi analysts wrote in a Monday note.

Washington and Beijing on Monday announced a deal under which they will sharply scale back trade tariffs against each other for the next 90 days. U.S. tariffs on China will fall to 30% from 145%, while Chinese tariffs on the U.S. will fall to 10% from 125%.

“Given the magnitude of China’s trade surplus with the US and rest-of-world, a dramatic reduction in US trade barriers should be favorable for the Chinese economy,” Citi analysts said.

Citi says the 20% tariffs linked to fentanyl were a “low-hanging fruit” for both sides, and that more cooperation from China was likely to remove the duty.

Still, Citi noted while the deescalation was positive for Chinese trade, it reduced the impetus for more urgent stimulus measures from Beijing.

Citi said the possibility of 1.5 trillion yuan ($210 billion) in additional fiscal stimulus had “significantly reduced,” while Chinese policymakers could further switch to a wait-and-see mode.

A swathe of weak Chinese economic readings in recent weeks furthered the need for urgent stimulus measures from Beijing, as the world’s second-largest economy grapples with prolonged disinflation.