Trump checks off EU trade deal – Europe response is disappointment

EU mid-market update: Trump checks off EU trade deal; Europe response is disappointment; As blockbuster week starts, US-China meet in Sweden to iron out issues before tariff pause ends on Aug 12th.

Notes/observations

- EU and US break deadlock on trade negotiations; As of Aug 1, the US will impose 15% tariffs on most EU exports, including autos (previously at 25%), pharmaceuticals and semiconductors. Steel and aluminum tariffs will stay at 50% for now. The EU will purchase $750B in energy products and substantial military equipment from the US and invest an additional $600B in the US. The two sides also agreed to zero-for-zero tariffs on aircraft, certain chemicals and agricultural products, and a few other products.

- Removal of instability and avoidance of worst-case tariff scenario are main positive takeaways for EU; Market reaction initially saw Euro couple tenths of a percent higher as European indices also moved higher with all sectors green. However, Euro did flip lower and auto equity sector pared gains as more thorough analyst breakdowns reveal deal as an overwhelming loss for EU and a win for US. German VDMA noted it will cost German auto industry ‘billions every year’; Europe is committing vast capital and investments into US economy while US is not returning favor. German press writes that there is no netting of imports vs exports for vehicles, as the auto industry hoped for.

- Elon Musk confirmed that Samsung’s new Texas fab will manufacture Tesla’s next-gen AI6 chip by 2033, while TSMC will produce the AI5 chip initially in Taiwan and later in Arizona. The $16.8B multi-year chip deal includes Tesla’s involvement in optimizing Samsung’s production efficiency, with Musk emphasizing hands-on oversight to accelerate development.

- According to Jefferies analysts, Walmart sees U.S. consumers as stable but notes early signs of trade-down behavior and substitution, with pricing pressures emerging across perishables, general merchandise, and upcoming seasonal items due to tariffs.

- On July 31, the Federal Circuit will hear a pivotal case testing whether President Trump can use the International Emergency Economic Powers Act (IEEPA) to unilaterally impose sweeping tariffs, with the lower court having already ruled such actions unlawful under the major-questions doctrine. A ruling affirming the lower court could void Trump’s 15%+ tariff regime and new trade deals, while a reversal could entrench emergency-based tariff powers—escalating uncertainty for markets and setting up a likely Supreme Court showdown.

- Focus pivots to rest of week, with Fed decision and Treasury Refunding Announcement on Weds, Aug 1st trade deadline on Fri, and abundance of earnings throughout.

- Asia closed mixed with Hang Seng outperforming +0.7%. EU indices +0.1-0.9%. US futures +0.2-0.5%. Gold +0.0%, DXY +0.5%; Commodity: Brent +0.8%, WTI +0.8%; Crypto: BTC +0.8%, ETH +3.3%.

Asia

- China Jun Industrial Profits Y/Y: -4.3% v -9.1% prior.

- Japan Fin Min Kato reiterated need to find new buyers for additional ¥60-70T worth of JGBs to "maintain smooth issuance" amid BOJ bond tapering. To examine market, adjust bond issuance as needed and take additional economic steps as 15% US tariffs remain. Agreed with US Treasury Sec Bessent that currency rates are (best) determined by markets.

Trade

- Trump announces deal with EU imposing 15% tariffs, averting trade war. EU has also agreed to buy $750B worth of U.S. energy products, will increase its U.S. investments by $600B and will buy additional U.S. military equipment.

- Treasury Sec Bessent and China Vice Premier He Lifeng set to hold talks for the third time this year in Stockholm.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.76% at 554.16, FTSE +0.14% at 9,132.65, DAX +0.37% at 24,321.59, CAC-40 +0.72% at 7,891.23, IBEX-35 +1.02% at 14,391.05, FTSE MIB +0.92% at 41,101.00, SMI +0.59% at 12,041.27, S&P 500 Futures +0.32%].

Market focal points/key themes: European indices open higher across the board, but moderated some of the gains in early trading; EU-US trade deal seen supporting risk appetite; among sectors leading the way higher are technology and health care; lagging sectors include communication services and utilities; Bavarian Nordic receives takeover offer from PE; MediaForEurope raised its offer for ProSiebenSat; reportedly LVMH studying sale of Marc Jacobs brand; earnings expected in the upcoming US session include EssilorLuxottica and Metro.

Equities

- Consumer discretionary: Heineken [HEIA.NL] +2.0% (earnings; EU-US trade deal), Puma [PUM.DE] +1.0% (analyst downgrades; EU-US trade deal).

- Healthcare: Bavarian Nordic [BAVA.DK] +2.0% (to be acquired), Roche [ROG.CH] +1.5% (US will impose 15% tariffs on most EU exports, including autos (previously at 25%), pharmaceuticals and semiconductors; To investigate whether experimental medicine Trontinemab can delay or prevent Alzheimer's disease symptoms).

- Industrials: Stellantis [STLA.NL] +1.5% (EU-US trade deal), Volkswagen [VOW3.DE] -0.5% (VW earlier talked about a specific deal with the US, mentioning capex credits; Tier1 analysts: Think EU-US trade deal is a bad deal for EU as it puts 15-20bps of GDP at risk), Forvia [EO.FR] +12.0% (earnings).

- Technology: ASML [ASML.NL] +4.5% (major Samsung contract with Tesla; EU-US trade deal).

Speakers

- Germany VDMA Engineering Association noted that US and EU must not make the trade deal the 'new normal'. Deal would cost companies in the German automotive industry billions every year.

- India Finance Ministry Monthly Economic Report (DEA) saw FY/2526 GDP growth between 6.2-6.5%. Economic activity might appear healthier than it was.

- India Defense Min stated that had met all political and military objectives on Pakistan border conflict.

- South Korea Senior Presidential Sec commented that the country was facing strong pressure from US on tariff negotiation. US was making specific demands in agriculture and livestock but making efforts to minimize concessions.

- Japan PM Ishiba stated that would do his best to execute trade deal with US Pres Trump. Reiterated apologize for the Upper House election results. Pledged to do duty to not create a political vacuum.

- China Foreign Min Wang Yi said to have held phone call with South Korea counterpart; Necessary for both sides to avoid 'decoupling'.

- China Foreign Ministry Official Guo hoped US could implement consensus already agreed by Trump and Xi; Urged Japan to abide by agreements on Taiwan status.

Currencies/fixed income

- USD was firmer during a quiet EU session as more trade deals come to fruition. Focus on the Wed FOMC rate decision and Friday’s non-farm payroll report. Greenback getting some help from the Fed as it appeared to be continuing to resist political pressure to cut interest rates.

- EUR/USD at 1.1685 as Trump announced a trade agreement between the US and European Union. EU to see a rash of growth and inflation data during the week.

- USD/JPY holding above 148 with focus on BOJ’s Thurs decision. Dealers noted that recent US-Japan trade deal open the scope for the BOJ to raise interest rates again this year but recent upper house elections put some fiscal risk into play.

- 10-year German Bund yield at 2.69% and 10-year Gilt yield at 4.61%. 10-year Treasury yield: 4.37%

Economic data

- (FI) Finland July Consumer Confidence: -6.4 v -8.6 prior; Business Confidence: -6 v -9 prior.

- (SE) Sweden Jun Trade Balance (SEK): B v 3.9B prior.

- (DK) Denmark Jun Retail Sales M/M: % v 1.0% prior; Y/Y: % v 4.0% prior.

- (CH) Swiss Weekly Total Sight Deposits (CHF): 474.7B v 475.3B prior; Domestic Sight Deposits: 445.0B v 444.8B prior.

- (TW) Taiwan Jun Monitoring Leading Indicator: 29 v 31 prior.

- (HK) Hong Kong Jun Trade Balance (HKD): -58.9B v -59.0Be; Exports Y/Y: 11.9% v 16.2%e; Imports Y/Y: 11.1% v 14.7%e.

Fixed income issuance

- None seen.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (BE) Belgium Debt Agency (BDA) to sell combined €2.5-3.0B in 2030, 2035 and 2055 OLO bonds.

- 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).

- 06:00 (UK) July CBI Retailing Reported Sales: No est v -46 prior; Total Dist. Reported Sales: No est v -39 prior.

- 06:00 (IE) Ireland Q2 Preliminary GDP Q/Q: No est v 7.4% prior; Y/Y: No est v 20.0% prior.

- 06:00 (IE) Ireland Jun Retail Sales Volume M/M: No est v -0.6% prior; Y/Y: No est v 1.6% prior.

- 06:00 (IL) Israel to sell combined ILS2.75B in 2027, 2029, 2033, 2035, 2042 and 2052 bonds.

- 06:00 (RO) Romania to sell combined RON700M in 2028 and 2035 bonds.

- 06:30 (IL) Israel Jun Leading 'S' Indicator M/M: No est v 0.1% prior.

- 06:30 (IN) India Jun Industrial Production Y/Y: 2.2%e v 1.2% prior.

- 07:00 (BR) Brazil July FGV Construction Costs M/M: 0.7%e v 0.96% prior.

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey

- 07:30 (BR) Brazil Jun Total Outstanding Loans (BRL): No est v 6.653T prior; Outstanding Loans M/M: No est v 0.6% prior; Personal Loan Default Rate: No est v 6.1% prior.

- 08:00 (MX) Mexico Jun Unemployment Rate: No est v 2.8% prior.

- 08:00 (MX) Mexico Jun Trade Balance: $1.0Be v $1.0B prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 09:00 (FR) France Debt Agency (AFT) to sell €5.7-7.3B in 3-month, 6-month and 12-month bills.

- 10:30 (US) July Dallas Fed Manufacturing Activity: -9.5e v -12.7 prior.

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.

-13:00 (US) Treasury to sell 2-year and 5-year Notes.

- 16:00 (US) Weekly Crop Progress Report.

- 19:01 (UK) July BRC Shop Price Index Y/Y: No est v 0.4% prior.

- 19:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 86.3 prior.

- 23:00 (TH) Thailand Central Bank to sell THB60B in 3-month bills.

- 23:35 (JP) Japan to sell 2-year JGB Bonds.