Global stocks rose and the euro firmed on Monday after a trade agreement between the United States and the EU lifted sentiment and provided clarity in a pivotal week headlined by the Federal Reserve and the Bank of Japan policy meetings.
The U.S. struck a framework trade agreement with the European Union, imposing a 15% import tariff on most EU goods – half the threatened rate, a week after agreeing to a trade deal with Japan that lowered tariffs on auto imports.
Countries are scrambling to finalise trade deals ahead of the August 1 deadline, with talks between the U.S. and China set for Monday in Stockholm amid expectation of another 90-day extension to the truce between the top two economies.
“A 15% tariff on European goods, forced purchases of U.S. energy and military equipment and zero tariff retaliation by Europe, that’s not negotiation, that’s the art of the deal,” said Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities. “A big win for the U.S.”
S&P 500 futures rose 0.4% and the Nasdaq futures gained 0.5% while the euro firmed across the board, rising against the dollar, sterling and yen. European futures surged nearly 1%.
In Asia, Japan’s Nikkei slipped after touching a one-year high last week while MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.27%, just shy of the almost four-year high it touched last week.
While the baseline 15% tariff will still be seen by many in Europe as too high, compared with Europe’s initial hopes to secure a zero-for-zero tariff deal, it is better than the threatened 30% rate.
The deal with the EU provides clarity to companies and averts a bigger trade war between the two allies that account for almost a third of global trade.
“Putting it all together, what we’ve seen with Japan, with the EU, with the talks which are due to be held in Stockholm between the U.S. and China, it really does negate the risk of a prolonged trade war,” said Tony Sycamore, market analyst at IG.
“The importance of the August tariff deadline has significantly been diffused.”
The Australian dollar, often seen as a proxy for risk sentiment, was 0.12% higher at $0.65725 in early trading, hovering around the near eight-month peak scaled last week.
FED, BOJ AWAIT
In an action-packed week, investors will watch out for the monetary policy meetings from the Fed and the BOJ as well as the monthly U.S. employment report and earnings reports from megacap companies Apple, Microsoft and Amazon.
While the Fed and the BOJ are expected to stand pat on rates, comments from the officials will be crucial for investors to gauge the interest rate path. The trade deal with Japan has opened the door for the BOJ to raise rates again this year.
Meanwhile, the Fed is likely to be cautious on any rate cuts as officials seek more data to determine if tariffs are worsening inflation before they ease rates further.
But tensions between the White House and the central bank over monetary policy have heightened, with Trump repeatedly denouncing Fed Chair Jerome Powell for not cutting rates. Two of the Fed Board’s Trump appointees have articulated reasons for supporting a rate cut this month.
ING economists expect December to be the likely starting point for rate cuts, but it “may be a 50 basis point cut, if the evidence on weaker jobs and GDP growth becomes more apparent as we anticipate.”
“This would be a similar playbook to the Federal Reserve’s actions in 2024, where it waited until it was completely comfortable to commit to a lower interest rate environment,” they said in a note.
(Reporting by Ankur Banerjee and Gregor Stuart Hunter in Singapore; Editing by Sam Holmes)