Concerns over trade negotiations are triggering a sell-off across European exchantes
European indices are experiencing declines today as anxieties mount over the potential re-imposition of high reciprocal tariffs by the United States on July 9, marking the end of their 90-day suspension period. Investors are clearly reacting to the uncertainty surrounding trade negotiations between the US and key partners, particularly the European Union, which has yet to reach a definitive agreement with Washington.
Key Factors to Monitor:
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Approaching Tariff Deadline: July 9 marks the culmination of the 90-day suspension of elevated tariffs. A failure to reach an agreement threatens the imposition of tariffs of up to 50% on EU exports to the US, injecting nervousness into the markets.
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Sectoral Vulnerabilities: Companies in sectors most exposed to tariffs—automotive, mining, steel, and aluminum—are experiencing the most significant losses.
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Additional Pressures: China has announced the introduction of anti-dumping duties of up to 34.9% on EU cognac and brandy, further exacerbating pressure on European export-oriented companies.
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Political Uncertainty: President Trump has stated his intention to begin sending official notifications to trade partners regarding new tariff rates as early as Friday, fueling an atmosphere of anticipation and apprehension. Trump is threatening to impose higher tariffs than the current broad 10% rate.
What the EU Hopes For and is Afraid Of:
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Anticipation of Compromise: The EU is banking on achieving at least a preliminary agreement that would avert an immediate tariff increase and provide time for further negotiations. The EU also hopes for exclusions for certain industries, specifically seeking a reduction in current tariff rates on cars, parts, steel, and aluminum.
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Escalation Risk: A lack of agreement threatens not only tariff hikes but also retaliatory measures from the EU, which could trigger another wave of market sell-offs and sour investor sentiment.
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Macroeconomic Uncertainty: An additional risk factor is the tax-and-spend bill passed by Congress, which analysts believe could increase the US deficit and inflationary pressures.
The EU50 (Eurostoxx 50) is down almost 1% today. It is noteworthy that declines in the European index have recently outpaced those of Germany's DE40. Furthermore, we observe that following the de-escalation of the situation in the Middle East, the EU50 has entered a period of consolidation, while the US500 and DE40 have seen clear increases. Among European companies, there is notably greater pressure on Spanish, Italian, and French firms, even though Germany would largely be the most significantly impacted by potential higher US tariffs.
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