By Lewis Krauskopf
NEW YORK (Reuters) -Investors are hopeful a potential trade deal between the U.S. and European Union could bring more certainty to markets ahead of next Friday’s tariffs deadline.
European Commission President Ursula von der Leyen was set to meet U.S. President Donald Trump on Sunday in Scotland after EU officials and diplomats said they expected to reach a framework deal this weekend. Trump on Friday said there was a 50-50 chance or perhaps less that the U.S. would reach a trade agreement with the EU.
Trade tensions between the U.S. and Europe may have provided some investors with a rationale to be cautious, said Sameer Samana, head of global equities and real assets at the Wells Fargo Investment Institute.
“It’s one of our largest trading relationships… So if that last piece falls into place, then you’ve probably got at the margin more people that have to get back in the markets,” Samana said. “It’s been a source of uncertainty that will go away.”
A deal would likely include a 15% baseline tariff on all EU goods entering the U.S. and probably a 50% tariff on European steel and aluminum, the officials and diplomats said.
Optimism over easing trade tensions broadly has helped push U.S. stocks to record highs. Trump’s April 2 “Liberation Day” announcement of sweeping global tariffs sent stocks plunging in the immediate aftermath, due to spiking fears about a recession that have since faded.
Still, investors have been bracing for increased volatility heading into August 1, which the U.S. has set as a deadline for raising levies on a broad swath of trading partners.
The EU is facing U.S. tariffs on more than 70% of its exports – 50% on steel and aluminum, 25% on cars and car parts and a 10% levy on most other EU goods, which Trump has said he would hike to 30% on August 1.
Hopes for a deal with Europe rose after Trump struck a trade agreement with Japan earlier in the week.
“The deal with Japan and the likely one soon with the EU are especially important given both are major U.S. trading partners, together accounting for about a quarter of all goods imports,” analysts at Capital Economics said in a note on Friday.
In the agreement with Japan, the country’s auto sector, which accounts for more than a quarter of its U.S. exports, will see existing tariffs cut to 15% from levies totaling 27.5% previously.
An agreement that also lowers EU auto tariffs to 15% “would be no small deal” for the region as well, as about 10% of its shipments to the U.S. are in the same category, Capital Economics said.
Investors over the weekend were also watching for developments on trade between the U.S. and China. Officials from the two countries plan to meet in Stockholm next week to discuss extending an August 12 deadline for negotiating a deal.
(Reporting by Lewis Krauskopf; Editing by Alden Bentley and Edward Tobin)
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