Customs clearance sparks immediate reactions from financial markets
The global markets have witnessed a surge in optimism following the landmark EU-US tariff agreement. The deal, which sets a 15% tariff ceiling on the vast majority of goods imported from the EU to the US, has provided a much-needed breather for many companies.
The agreement, which replaces higher prior tariffs, has been welcomed by analysts who see the threat of a prolonged trade war as "neutralized." Jigar Trivedi, a senior commodities analyst at Reliance Securities, stated that gold is under pressure due to the agreement, reflecting a positive sentiment in the markets.
The tariff ceiling applies as a single, non-stacking tariff, meaning it replaces rather than adds to other US tariffs and sets a clear maximum limit on tariffs applied by the US to EU products, including potential future tariffs under Section 232 related to pharmaceuticals and semiconductors.
In addition to the tariff provisions, the agreement includes forced purchase commitments by the EU of US goods, notably energy and military equipment. The EU has pledged to buy $750 billion worth of energy and $600 billion in investments by 2028, a substantial increase in trade ties supporting US exports and manufacturing.
However, the EU leadership has indicated that in case of unilateral US tariff hikes beyond the agreed 15% ceiling, it would consider "proportionate countermeasures," reflecting a readiness to impose retaliatory tariffs or trade actions to protect its interests and prevent escalation.
The agreement also emphasizes non-tariff barrier reduction, economic security cooperation, and strong rules of origin to secure mutual benefits. Both sides will ensure strong rules so benefits flow directly to EU and US businesses, excluding third countries. They will also collaborate on addressing non-tariff barriers, such as streamlining sanitary requirements for food and agricultural trade and tackling unjustified digital trade barriers.
The US and EU will also coordinate on supply chain resilience, export controls, and combatting duty evasion to strengthen trade security and innovation.
The global stock prices have risen in response to the agreement, with the S&P 500 futures and Nasdaq futures gaining 0.4 percent and 0.5 percent respectively. The Shanghai Stock Exchange and the MSCI index for the Asia-Pacific region outside Japan have also seen gains, rising 0.3 percent and 0.27 percent respectively.
The euro has gained ground against the dollar, the pound sterling, and the yen, reflecting the improved sentiment in the markets. The Australian dollar, often seen as an indicator of risk sentiment, was up 0.12 percent.
However, Helena Melnikov, CEO of DIHK, stated that the deal comes at a price and creates short-term stability, but it's just a first step. The agreement does not provide clear details on many aspects, and the tariff agreement involves a 15 percent tariff on goods imported from the EU to the US, except for certain products.
Despite the uncertainties, the agreement has undeniably brought a sense of relief to the global markets, with investors focusing on a crucial week for U.S. monetary policy and economic data. It is anticipated that the U.S. Federal Reserve (Fed) will keep its benchmark interest rate in the range of 4.25 to 4.50 percent following its two-day meeting on Wednesday.
References:
- Bloomberg
- Reuters
- CNN Business
- Politico
- The agreement has prompted discussions about the potential impact on various community policies, as analysts ponder the effects of increased investment and business opportunities arising from the EU-US tariff deal.
- With the EU committing to significant purchases of US goods and investments, financial institutions may revise their employment policies to accommodate the anticipated growth in the energy and manufacturing sectors.
