Market Update: EU-US trade deal eases near term downside risks - 28 July 2025

Highlights: The European Union (EU) and the United States reached a trade deal on Sunday, 27th July, agreeing on a 15 per cent tariff rate to be imposed on EU goods sold to the US, starting 1st August. European Commission President von der Leyen claimed that this rate “was the best we could get,” whilst creating “certainty in uncertain times.” While some questions still linger particularly with regards to certain sectors, downside from tail risk events may narrow. Conscious of a firm EUR and weaker relative earnings momentum of Eurozone earnings compared to US peers, we reiterate our neutral view on Europe ex-UK equities with a preference for Financials, Industrials, and Utilities.

• The EU-US trade deal comes after several key agreements the US reached recently, including Japan, Indonesia, the Philippines and Vietnam. While a number of countries are still awaiting deals of their own, President Trump termed this “the biggest of all trade deals” given the EU and US account for 44 per cent of global GDP and 30 per cent of world trade in goods and services
• Key terms of the EU-US deal include a 15 per cent tariff rate imposed on most EU goods including automobiles, a USD750 billion purchase of US energy products and chips and USD600 billion of additional US investments from the EU. However, details of sectoral tariffs, namely pharmaceuticals and semiconductors may not be fully clear while we await Section 232 investigations and as a full written agreement has not yet been released
• Although the Eurozone is ultimately left with a higher baseline tariff of 15 per cent compared to the 10 per cent level it was hoping to achieve, the incremental downside risks to growth should be manageable given that “certainty” may pave the way for stabilisation in sentiment or a bottoming out in tariff-exposed sectors
• We keep our neutral view on Europe ex-UK equities with a preference for opportunities in the Industrials, Financials and Utilities sectors. Our preferred exposure in the fixed income space lies with IG bonds of 7-10-years duration, while we hold a neutral view on EUR