European stocks rise to 4-month high after US and EU strike tariff deal

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European stocks rose to a four-month high on Monday after the US and EU reached a tariff deal that looks set to avert a full-blown trade war.

The broad Stoxx Europe 600 index was up 1 per cent in early trading, while Germany’s Dax gained 0.9 per cent and France’s Cac 40 climbed 1.2 per cent.

US stocks were also set to open higher, with contracts tied to the S&P 500 up 0.5 per cent.

Under the deal struck on Sunday, the bulk of EU exports to the US, including cars and pharmaceuticals, will face a 15 per cent tariff. The EU has also agreed to spend hundreds of billions of dollars on US energy products and weapons.

Although the agreement raises tariffs on a broad range of EU exports, investors said it also helped reduce the uncertainty over trade that has stalked markets since US President Donald Trump’s “liberation day” announcement in early April.

Trump had threatened to impose 30 per cent tariffs on the EU if no deal had been struck by August 1.

The deal brought “an end to the uncertainty of recent months,” noted Carsten Brzeski, global head of macro at ING. “An escalation of the US-EU trade tensions would have been a severe risk for the global economy.”

Trump and European Commission president Ursula von der Leyen agreed the deal on Sunday at the US president’s Turnberry golf resort in Scotland.

Dozens of the US’s trading partners face an August 1 deadline to reach a deal, after which Trump said he would impose higher tariffs. Last week, Trump sealed an agreement with Japan that imposed 15 per cent tariffs on Japanese exports to the US.

Geoffrey Yu, a senior strategist at BNY, said that the deal reflected “pragmatism” from European governments.

“The path of least resistance is trying to limit exogenous shocks to Europe,” Yu said. 

However, Trump said US levies on steel and aluminium, which he has set at 50 per cent on many countries across the world, would not be cut to 15 per cent for EU products.

The deal “allays some of the worst fears of an escalating tariff war,” said Mitul Kotecha, head of foreign exchange and emerging markets strategy at Barclays.

But for the EU, he added, the agreement might “seem like a bit of a capitulation as well”.