Friday saw a major sell-off in equities, bonds, and the dollar. This chaos came on the heels of U.S. President Donald Trump’s suggestion of a shocking 50% tariff on EU imports, intensifying global trade war rhetoric. The announcement reverberated across the financial markets, a sign of investor panic about the prospect of an escalated trade war. As the day of trading continued, equities and bonds recovered sharply. They recouped nearly all of their intra-day declines—testifying to the fortitude of resilient investors out there.
His announcement only further complicated active trade negotiations with the EU, which he recently dubbed as “futile.” He underscored this point by stating explicitly that he was “not looking for a compromise,” implying that any efforts to negotiate would find a wall of resistance. The proposed tariffs, if implemented, could have far-reaching implications for both U.S. and European economies, adding to uncertainty in global markets.
That first negative reaction was alarming enough to raise concern, but European markets made a quick recovery. Futures are indicating that this upward trend will continue. The pan-European Stoxx 600 index closed the day down 0.9%. At its lowest, it was down more than 2%. Closer to home, the S&P 500 index in the U.S. fell marginally, by 0.7%. In comparison, the so-called “Magnificent Seven” tech companies fell by a paltry 1.5%.
Surprisingly, Trump relented and decided not to go through with heavy tariffs. He agreed to postpone the deadline for negotiations with the EU to July 9. Following discussions with European Commission President Ursula von der Leyen, the two leaders quickly came to a “swift and constructive agreement.” This decision came as a direct result of their healthy dialogue. As a result, the EUR/USD rose sharply on this news, reaching its highest value since early May.
While markets processed these significant historic firsts, focus quickly shifted to a build up of critical economic releases. Looking to improve your understanding of emerging fuels? Look no further. We’ll have the U.S. consumer confidence report on Tuesday. Finally, on Wednesday, the Federal Open Market Committee (FOMC) will release their minutes. Analysts are anxious to see how these reports will move the markets considering the continued backdrop of trade war tensions.
Additionally, recent economic data from Germany indicated that the country’s GDP growth was revised upward to an impressive 0.4% quarter-on-quarter for Q1 2025. European markets might be able to take some comfort from this pleasantly unexpected news. It arrives right as they are working to meet the challenge of possible tariffs.