As US President Donald Trump reignited his global trade war, investors awaited Friday’s tariff announcement between the US and the European Union, which may add a potentially volatile development.
The European Union was anticipating a letter from Trump detailing proposed tariffs on the biggest trading and investment partner of the US. Along with a 50 percent tariffs on US imports of copper, the president this week announced new duties on US imports of commodities from other nations, including allies South Korea and Japan. Trump also declared that tariffs on Canadian goods would increase to 35 percent.
An individual with knowledge of the US-EU negotiations stated that it was difficult to predict if the bloc would receive a letter announcing further tariffs or when an agreement would be reached. EU had hoped of reaching a comprehensive trade deal after months of challenging trade talks.
Art Hogan, chief market strategist at B Riley Wealth said, “We get bad news from the euro zone … and that’s clearly going to be bad news for markets and sentiment.”
“Across the board, we do a massive amount of trade,” he remarked adding that the US and Europe concentrate on sectors like pharmaceuticals and automobiles.
“Right when we thought we had the exit on this trade war highway in sight, it’s getting further off in the distance, and it’s not looking prettier,” Hogan added.
The benchmark S&P 500 (.SPX), which opened new tab, concluded the week down just 0.3 percent and not far from record-high levels, despite being little rocky this week. After falling precipitously in April after Trump’s ‘Liberation Day’ announcement of broad worldwide tariffs, US stocks have since recovered. Many of those high tariffs had been put on hold by Trump, but this week he announced fresh tariffs that would take effect on Aug 1.
Wall Street’s “fear gauge,” the CBOE Volatility Index (.VIX), finished Thursday at 15.78, its lowest closing level in almost five months, but it rose above 16 on Friday.
Scott Chronert, a strategist at Citi, stated in a note on Friday that “we will need some positive trade developments by the White House’s Aug. 1 deadline to hold recent equity market gains,” even though markets are less susceptible to headlines than they were a few months ago.
According to UBS economists on Friday, the weighted average tariff in the US is currently at 16 percent, up from 2.5 percent at the beginning of the year. The rate would increase to almost 18 percent when the national tariffs mentioned in this week’s letters are considered, according to a note from UBS.
The rate for the EU that was suggested on April 2, ‘Liberation Day’, was double the rate that the bloc is currently facing, according to UBS economists.
“That increase alone would add nearly (1 percentage point) to the weighted average tariff rate,” UBS stated.