European Stocks See Risk Sentiment Release! U.S. and EU Reach 15% Tariff Agreement, Auto and Luxury Sectors Expected to Lead Gains

According to information from Zhitong Finance APP, investors anticipate that after the United States and the European Union reach a trade agreement, European stock markets will experience a rebound when they reopen on Monday, with automakers and luxury goods manufacturers leading the rise. On Sunday, U.S. President Trump and European Commission President von der Leyen announced that the U.S. has reached a 15% tariff agreement with the EU. Trump stated that the EU will increase its investment in the U.S. by $600 billion more than before. The European leader noted that this rate covers all goods, but Trump mentioned that it does not include pharmaceuticals and metals.

After the announcement of the transaction, the euro's exchange rate rose against other G10 currencies. The euro rose 0.2% against the U.S. dollar to 1.1766, and the currency pair had already increased by 1% last week.

John Plassard, Chief Investment Strategist at Cité Gestion, stated that the deal is "good enough to meet the stock market's most urgent demand: providing transparency." He said, "The risk of tariff hikes has now been eliminated, followed by the removal of significant macroeconomic pressure. For investors, this not only means a sigh of relief but also a 'green light'."

Since May, European stock markets have been trading within a range, driven by concerns over the global trade outlook. Currently, the STOXX 600 index is down 2.3% from its record high in March. A tariff-sensitive stock index compiled by UBS has underperformed the overall market benchmark this year, indicating that this sector still has potential to catch up with the broader regional benchmark. On Monday, the sectors most affected by trade, such as automobiles and consumer goods, are expected to outperform their performance from last Friday, as investors believe an agreement can be reached before the August 1 tariff deadline.

Geoff Yu, macro strategist for Europe, the Middle East, and Africa at BNY Mellon, said, "I do believe that once the relevant details are finalized, there will be a market rebound. For European stock markets, this is undoubtedly a shot in the arm, as it is currently earnings season and there is an urgent need to boost morale."

The focus of this agreement will be on automakers such as Stellantis (STLA.US), Volkswagen Group, Mercedes-Benz Group, and BMW Group, as well as automotive parts suppliers like Valeo SE, Forvia SE, and Pirelli & C SpA. The sector's indicators have remained flat this year, failing to keep pace with the overall upward trend in Europe.

Investors will also closely monitor luxury goods manufacturers including LVMH, Kering, and Ferragamo, as North America is an important market for the luxury goods industry.

Beverage manufacturers including Diageo, Rémy Cointreau, and Pernod Ricard, as well as shipping companies such as Maersk and Hapag-Lloyd, will become the focus of attention because the freight business is highly sensitive to tariffs.

However, some investors warn that this rally may only be temporary, as more detailed information about the trade agreement is needed to determine its sustainability.

Neil Birrell, Chief Investment Officer at Premier Miton Investors, said: "You might see the market recover somewhat in the morning, but then it might fall again." "The key is in the details, which are not entirely good for Europe, nor entirely good for the United States."

The following are the views expressed by other market participants:

Kallum Pickering, Chief Economist at Peel Hunt, said: "People are hoping that the US can reach a series of agreements. These agreements may not all be good, but uncertainty itself is already bad enough. After we see a slight rise in the European markets tomorrow, investors' attention will turn to Canada and Mexico. As long as they can reach agreements like they did today, it will be favorable enough for risk sentiment."

Michael Brown, Senior Research Strategist at Pepperstone, said: "At present, the stock market hardly needs any reason to rise. This agreement not only eliminates a major potential risk that the market has long been concerned about, but also once again demonstrates that the market’s direction remains away from heated rhetoric and is inclined toward reaching practical trade agreements. Rumors that the US-China trade truce agreement will be extended for another 90 days will also play a positive role in this regard."

Brown added: "From an industry perspective, European car manufacturers are among the biggest winners this time, as the 15% tariff also applies to U.S. car imports. This tariff concession is similar to what Japan has obtained. Other obvious winners include U.S. defense companies, as the EU has procurement commitments in this area; in addition, U.S. energy stocks will benefit, knowing that the EU will invest nearly $1 trillion in this."

Panmure Liberum strategist Joachim Klement stated, "In light of this news, the stock market may experience a rebound, but it would only be a brief boom. The fact is that American consumers will face higher tariffs on imports from the US, and there will be a surge in inflation and a slowdown in economic growth in the second half of the year. The tariff levels in the European Union are also higher than those in the UK, which gives British exporters an advantage over their European competitors."

Mahmood Pradhan, the Global Head of Macroeconomic Strategy at Amundi Asset Management, pointed out: "There may be some short-term rebound this morning, including more short-covering operations. But considering the market situation before Liberation Day, this is not good news for Europe. In the long term, this will suppress Europe's economic growth."