Trade deals and interest rates high on the agenda for market watchers this week
It’s another big week for global equity markets as the latest deadline approaches that could see heavy tariffs imposed on goods sold to the US – plus a highly anticipated Fed rate decision.
In what’s being hailed by both sides as a major trade agreement, President Trump and European Union president Ursula von der Leyen announced that their talks at Trump’s golf resort in Scotland over the weekend have resulted in a deal.
Trump said it’s “going to be great for both parties” with America set to benefit from $600 billion in new investment from the EU and agreement for purchase of $750 billion of US energy products. There will also be some goods, such as certain aircraft parts, chemicals, and semiconductors which will be traded with zero tariffs from either side.
However, the EU president was more muted in her assessment of the deal, specifically on tariffs which will be 15% for most goods the bloc sells to the US which she said was “the best we could get.” Currently, the tariff on EU goods is 10% but Trump warned this could surge to 30% if a deal was not agreed by August 1.
There was also little relief for EU metals producers, with the US blanket tariff of 50% for steel and aluminum remaining, although there was talk of quotas that may be at more favorable rates.
French Prime Minister François Bayrou said the deal represented a “sombre day” reflecting the views of some EU leaders that a stronger push should have been made to get a better deal, given that the 15% rate is higher than it was before the first round of tariff announcements in April and also more than the 10% that the UK, a former member of the bloc, has agreed with President Trump.
The US has recently agreed trade deals with Japan, Vietnam and Indonesia, but Canada, Mexico, and China are other major agreements that are yet to be concluded. New tariffs of between 15-30% will affect many other countries from this Friday.
While US equities are expected to start the week higher following the EU deal, there are other factors that will be closely watched this week, including the latest inflation reading via the personal consumption expenditures index and several soundings of the state of the labor market.
But there will also be the Fed’s July interest rate decision. While few expect any change – markets are pricing in a 97% chance of a hold – the key will be in the comments that may give a clearer path to future cuts, perhaps as soon as September.
