Global Markets Surge as US-EU Trade Deal Eases Investor Anxiety
The global stock benchmarks opened the week with firm gains, driven by a return of investor risk appetite after progress on trade talks between the US and EU. Futures tracking the S&P 500 in the United States rose 0.45%, while those for the Nasdaq gained 0.5%, pointing to a robust start on Wall Street. European stock futures were also up by almost 1%, supported by the relief in trade tensions.
The MSCI’s broadest index of shares outside Japan rose 0.27% in Asia, remaining close to the four-year high it touched last week. Japan’s Nikkei index declined 0.8%, pulling back after its recent rally to a one-year peak. The euro rose significantly against the U.S. dollar, British pound, and Japanese yen as the market welcomed the deal, reflecting market’s positive response to the deal.
US-EU Trade Agreement Brings Relief
Markets rallied on news that the United States and the European Union had reached a framework trade deal. Under the deal, the administration agreed to apply a 15% tariff on most European goods entering the United States, well below the 30% rate it had previously threatened. The deal is regarded as a compromise with gains for both countries, and it diminishes the near-term risk of a full-blown trade war.
The U.S. had also recently reached a similar pact with Japan to reduce vehicle import tariffs. These back-to-back deals are part of a broader effort by the Trump administration to wrap up global trade before the August 1 deadline. Meantime, the U.S. and China have opened trade talks in Stockholm with hopes of extending their current ceasefire on tariffs.
Clarity Brings Optimism to investors
Market analysts say the recent agreement with Europe has added some clarity to businesses and investors struggling through months of uncertainty. “This deal defuses a significant risk and is part of a broader move back toward stability and predictability in trade policy,” said Marc Velan, head of investments at Lucerne Asset Management.
European leaders had previously hoped for a zero-tariff agreement, but the new 15% rate is considered a positive result compared to the 30% that was on the horizon. Investors are also viewing the trade news as a sign that the U.S. is choosing diplomacy over belligerent trade moves.
China’s CSI 300 index in Asian markets added 0.3%, led by gains in financials and in the consumer sector. Hong Kong’s Hang Seng index rose 0.75%, and the Australian dollar, which is often used as a liquid proxy for global risk, was near an eight-month peak at $0.657.
Focus Shifts to Fed and BOJ
With the trade tensions easing, investors are turning their attention to two key central bank meetings scheduled this week, one from the U.S. Federal Reserve and another from the Bank of Japan. Both central banks are anticipated to keep interest rates on hold, but traders will be listening closely for any indications as to what comes next, particularly given shifting inflation data.
The White House is keeping up the pressure on the Federal Reserve. President Trump has regularly lambasted Fed Chair Jerome Powell for keeping interest rates high and failing to do enough to pump up the economy. Two of Trump’s Fed Board appointees have signaled that they would be open to lowering rates if inflation stays low.
Economists say that the Fed’s direction will probably be influenced by future economic data. “The PCE inflation index and July jobs report are going to be crucial to shape expectations post this meeting,” said Kieran Williams, head of Asia FX at InTouch Capital Markets. If inflation keeps cooling, a policy change might be postponed until September.
Oil Jumps, Gold Slides, as Risk Assets Rally
The commodities market was also buoyed by the better trade outlook. Oil prices inched up, with Brent crude and U.S. West Texas Intermediate both up about 0.5%. The increases were largely on expectations for stronger demand and less global trade friction after the U.S.-EU deal.
