On Sunday, President Donald Trump announced a new framework for a trade deal. He stood with European Commission President Ursula von der Leyen to announce the thrilling new partnership between the United States and the European Union. Although convened in Scotland, this was no ordinary meeting. It represented an important turning point in transatlantic relations. Both leaders are trying to ensure that overall economic relations remain stable as fears mount of a possible US recession.
The recently announced retaliatory trade agreement places a 15% tariff on U.S. imports of any EU goods. This step is intended to level the playing field for American trading companies. Despite the formal announcement, analysts have cautioned that the fine details of the deal may still be subject to negotiation. They raised concerns that President Trump would be able to back out of the deal even after he signs it. This has the potential to increase the existing volatility in the markets.
The U.S. economy contracted—yes, that’s right, contracted—during the first quarter of this year for the first time in three years. This worsening trend has begun to sound alarm bells for investors. As it stands, a recession is typically defined as occurring after two consecutive quarters of economic contraction. Recent tariffs have increased fears that the U.S. is already approaching this slippery slope.
The dollar soared and prices for U.S. Consequently, the benchmark S&P 500 index was set to shoot up still more into record territory on Monday. The index had set or matched five straight all-time highs last week and added 0.17% on Monday. At the same time, Europe’s benchmark Stoxx 600 index reached its highest point in four months, rising by 0.3%. There was a further reversal on Germany’s DAX index, which first moved higher before turning lower by 0.2%.
Guest Derek Halpenny, head of research for global markets at MUFG, brought the good news on the financial markets. He added that the increased certainty in the run-up to August 1st has made that date feel less momentous. These types of comments are indicative of an overall positive market sentiment after the announcements.
Meanwhile, in the U.S., big oil, major airlines and UPS are in the earnings spotlight this week. Those companies that together make up 37% of the S&P 500’s market cap are about to announce their second-quarter results. In particular, mega-cap stocks Meta and Microsoft will report their results on Wednesday, followed by Amazon and Apple on Thursday.
Negotiators from both Washington and Beijing are scheduled to meet in Sweden later this week. They will gin up anti-trade fervor, complicating an already complex and frightening trade reality.
Jan Hatzius, chief economist at Goldman Sachs, is betting that the Fed will hold interest rates in its next meeting. He expects them to start a rate-cutting cycle thereafter. Establishment analysts at Bank of America seem to share this optimistic perspective. They forecast that the Fed will go into a wait-and-see mode in July, waiting for longer-term trends in data to emerge.
To that end, market analysts have been bullish on the ability of a U.S.-EU trade deal to lower that uncertainty. This will bring greater near-term certainty. The markets seem to be reacting positively to this news this morning,” said Allen-Reynolds.
Granite Bay Wealth Management chief investment officer Paul Stanley was among those to note that the 15% baseline tariff is very much alive. This tariff will increase costs on a host of products, but the lessening of uncertainty would provide an optimistic view to the markets. Uncertainty hindering growth “The EU-US trade deal removes one of the biggest sources of uncertainty in markets,” he said.
Investor confidence is already waiting on bated breath for news on ongoing domestic and international trade talks. They are concerned but feel encouraged by what the new trade deal portends. The first and understandable reaction from financial markets is seeking stability and clarity as they have to deal with a possible severe economic storm.