A trade agreement is in the works between the US and the EU, capping tariffs at 15%, causing a surge in European markets, averting a feared sudden spike to 30% by August 1.
Feeling a Fresh Breeze on the Financial Markets
European stock exchanges are on the rise. The imminent agreement between Washington and Brussels to limit tariffs to 15% on imports calms minds and boosts stocks.
Thursday saw the Stoxx Europe 600 climb by 0.6%, reaching a six-week peak. In Frankfurt, the Dax rose by 1%, while the Spanish Ibex soared by 1.3%. The spark behind this surge? Hope for a customs compromise between the two blocs, avoiding a tariff explosion to 30% by August 1, a threat constantly brandished by Donald Trump in recent weeks.
The same scenario played out between the US and Japan the day before, with a similar 15% agreement, down from the initially proposed 25%. The message is clear: trade tensions are easing, at least for now.
“We still live in a world of high tariffs, but it’s much less brutal than what the markets feared.” – Andrew Pease, Russell Investments
The Pharma and Auto Industry are Ready for Action
This rebound chiefly benefits the sectors most exposed to the trade war. The European indices for pharmaceuticals and automakers have significantly improved.
Novo Nordisk gained 1.3%, Bayer 2.4%, and Sanofi 1%. On the automotive side, the Stoxx 600 sub-index continued to rise by 0.5%, driven by hopes of reduced tariffs on European cars exported to the US, currently taxed at 27.5%. This outlook revitalizes Volkswagen (+1.3%) and Mercedes-Benz (+0.5%).
“It would be a modest increase from the 10% already in place since the ‘liberation day,’ but it would provide visibility.” – Jim Reid, Deutsche Bank’s macro head
Less Doubts, More Returns
The calmer climate has also affected bonds. The yield on the 10-year German Bund rose by 7 basis points to 2.67%, indicating renewed confidence in future growth.
Even the ECB, expected to maintain monetary status quo on Thursday, sees its room for maneuver shrinking. Markets now anticipate a lower likelihood of rate cuts in 2025, according to swap market levels.
A Trade War Pause… For How Long?
Caution remains necessary. Nothing is officially signed between the EU and the US yet. However, if the agreement solidifies, it could significantly curb the economic impact of the trade war and restore stability to European exporters.
The dollar remains stable against the euro at $1.176, but the overall sentiment is more optimistic.
“If the agreement is confirmed, it will alleviate downside risks for the European economy.” – Lee Hardman, MUFG
A welcome respite for the markets, awaiting the next episode.
