Equity markets predominantly advance on optimism surrounding a trade agreement, as Tesla experiences a significant drop
In a significant development for transatlantic relations, the US and EU have reached a landmark trade agreement aimed at easing previous trade tensions while maintaining some tariffs. The deal, which has been hailed as the "largest ever made" in US-EU trade relations, includes several key points.
Adam Sarhan of 50 Park Investments commented on the agreement, stating that buyers are in control and there is optimism about future trade deals. This optimism is reflected in the stock market, with most European stocks markets, excluding Paris, rising as the EU and Washington appeared close to a deal.
The Hang Seng Index closed at 25,667.18, up 0.5 percent, while the Nikkei 225 closed at 41,826.34, up 1.6 percent, and the DAX closed at 24,295.93, up 0.2 percent. The FTSE 100 also saw a 0.9 percent increase, closing at 9,138.37.
However, the agreement is not without its criticisms. The EU will impose a 15% tariff on most goods, notably on automobiles, which is a reduction from an initially threatened 30% tariff but remains substantial. The US steel and aluminum tariffs at 50% will remain unchanged.
Despite these criticisms, the easing of tariff escalation and the signing of a massive trade and investment deal likely reduce uncertainty for multinational companies, particularly in sectors sensitive to tariffs like automotive and energy. The large EU commitment to US energy purchases and investments could boost US energy and industrial stocks, while implying a more stable supply outlook for European energy markets.
However, the persistence of a 15% tariff may keep some pressure on European exporters to the US, possibly weighing on some EU manufacturing stocks. Currency markets might experience relative stability due to reduced trade tensions, but the ongoing tariff regime and divergent economic policies could maintain volatility between the US dollar and the euro.
In other market news, Tesla fell 8.2 percent due to Elon Musk's warning of a rough patch for earnings. The S&P 500 closed at 6,363.35, up 0.1 percent, while the Nasdaq Composite closed at 21,057.96, up 0.2 percent. The Dow Jones Industrial Average closed at 44,693.91, down 0.7 percent, despite both the S&P 500 and Nasdaq edging higher to close at new records.
The European Commission spokesman stated that a trade deal with the US is "within reach." The deal could potentially waive tariffs on aircraft, lumber, pharmaceutical products, and agricultural goods. The Pound/dollar rate is at $1.3507, while the Euro/dollar rate is at $1.1756, and the Euro/pound rate is at 87.01 pence.
Investors have profited recently from wagers that governments will reach trade deals with Donald Trump before his August 1 deadline. The CAC 40 closed at 7,818.28, down 0.4 percent, while London's FTSE 100 gained 0.9 percent, lifted by robust earnings from companies like Reckitt, Vodafone, and Lloyds bank. The Shanghai Composite closed at 3,605.73, up 0.7 percent.
Google parent Alphabet climbed 0.9 percent after reporting $28.2 billion in second-quarter profits. West Texas Intermediate is up 1.2 percent at $66.03 per barrel, while Brent North Sea Crude is up 1.0 percent at $69.18 per barrel.
In conclusion, the current US-EU trade deal marks a major but compromised agreement with mutually beneficial energy and investment commitments, retention of notable tariffs, and a complex impact on markets that balances relief from trade war fears with persistent protectionist measures.
- The US-EU trade agreement, while significant, includes a 15% tariff on most goods, including automobiles, which may put pressure on European exporters to the US.
- Adam Sarhan of 50 Park Investments commented on the agreement, stating that optimism about future trade deals is reflected in the stock market, with most European stocks markets rising.
- The European Commission spokesman stated that a trade deal with the US is "within reach," which could potentially waive tariffs on aircraft, lumber, pharmaceutical products, and agricultural goods.
- The large EU commitment to US energy purchases and investments could boost US energy and industrial stocks, while the persistence of a 15% tariff may maintain volatility between the US dollar and the euro.
