On Monday, global stock markets experienced gains, and the euro reached a strong position, fueled by positive sentiment regarding trade agreements between the US and the EU. This optimism came at a crucial time, just before a significant policy meeting involving the Federal Reserve and the Bank of Japan.
The US has struck a framework trade agreement with the European Union, which includes a 15% import duty on much of the EU’s goods. This is notably less than the previously threatening rates discussed in a similar accord with Japan.
Countries are now hurrying to finalize trade agreements ahead of an August 1 deadline set by President Donald Trump. Meanwhile, US-China discussions are scheduled for Monday in Stockholm, with expectations of extending a ceasefire between the two largest economies by another 90 days.
“We have 15% tariffs on European goods, requirements to purchase US energy and military equipment, and no retaliatory tariffs from Europe—it’s not really negotiations. It’s trading art, I guess. A win for the US,” someone might say.
In response, European futures jumped by over 1%, while S&P 500 futures went up by 0.5% and Nasdaq futures increased by 0.6%.
The euro gained ground against the dollar, sterling, and yen, indicating a robust performance.
Sim Mo Sion, a currency strategist at the Bank of Singapore, noted a cautious outlook on the prevailing market rally, suggesting that “a lot of good news is already priced in.”
The MSCI index tracking Asia-Pacific stocks outside Japan rose by 0.32%, coming close to a four-year high mentioned last week. However, Japan’s Nikkei index fell by 1% after previously hitting a year-high.
Though a 15% tariff is still considered high by European standards—especially since there was hope for a zero-to-zero tariff deal—it’s certainly an improvement from the initially threatened 30% rate.
US-EU trade relations aim to provide businesses with clearer guidelines and help avoid escalating tensions between these major partners, who represent nearly a third of global trade.
Marc Velan, director of investment at Lucerne Asset Management in Singapore, observed that “major tail risks are currently being overlooked.” He added that the markets see this situation as a sign that stability and predictability are returning to trade policies, mentioning that China’s approach is following a similar pattern.
Profits from China’s blue-chip stocks took a breather, while Hong Kong’s Hang Seng Index climbed by 0.5%.
The Australian dollar, often viewed as a gauge of risk appetite, stood at $0.657, hovering near an eight-month high reached last week.
Fed and BOJ Await Developments
This week promises to be eventful for investors, with financial policy meetings from the Fed and Bank of Japan, as well as monthly US employment reports and earnings from major companies like Apple, Microsoft, and Amazon.
Both the Fed and BOJ are likely to maintain their current rates, though statements from officials could provide insights into future interest rate trajectories. The deal with Japan might create room for the BOJ to consider raising rates later this year.
On the other hand, the Fed may proceed cautiously regarding any potential reductions, aiming to gather more data on tariff impacts before making significant decisions.
However, tensions have been rising between the White House and the central bank about monetary policy. President Trump has repeatedly criticized Chairman Jerome Powell for not acting aggressively enough. Recently, two of Trump’s appointees to the Fed Committee clarified their support for interest rate cuts.
In the commodities market, crude oil prices rose following the trade agreement between the US and EU, with both Brent crude futures and US West Texas Intermediate crude increasing by 0.5%.
Conversely, gold prices fell to their lowest point in nearly two weeks, reflecting a reduced demand for safe-haven assets.
