US-EU trade deal lifts global markets as sentiment improves

​​​Trade deal details boost market sentiment

​The framework agreement between the US and European Union (EU) has provided much-needed clarity for global markets. The deal sees US tariffs on most EU imports set at 15%, significantly lower than the threatened 30% level that had markets on edge. This compromise has immediately lifted sentiment across equity markets.

​The agreement favours US interests through European commitments to increase purchases of American energy and defence goods. Additionally, the EU has agreed to boost investment in US infrastructure projects. These concessions have helped justify the more moderate tariff approach from Washington's perspective.

​European equity indices posted solid gains, with technology and export-oriented sectors leading the advance. The reduced uncertainty should support corporate investment decisions that had been on hold pending trade clarity.

​China negotiations offer additional support

​Parallel developments in US-China trade talks have further boosted risk appetite. Negotiations resumed in Stockholm with reports suggesting another 90-day extension to current arrangements. This provides additional breathing room for markets already buoyed by the EU agreement.

​Currency markets respond to reduced tensions

​The euro's broad-based strength represents the most immediate market reaction to the trade agreement. EUR/USD pushed higher as investors moved away from safe-haven US dollar positions. The single currency had been under pressure from trade uncertainty affecting European exporters.

​Sterling also benefited from the improved risk environment, though Brexit considerations continue to create headwinds. The pound's performance remains more dependent on domestic political developments than broader trade dynamics.

​Central bank meetings remain key focus

​Despite trade progress, attention now turns to this week's Federal Reserve (Fed) and Bank of Japan (BoJ) meetings. Both central banks are expected to maintain current policy settings, but commentary will be crucial for market direction.

​The Fed faces ongoing political pressure regarding rate policy, making Chair Powell's statements particularly significant. Markets will analyse any hints about future policy paths given the changing trade landscape.

​The BoJ continues its ultra-accommodative stance, but trade developments could influence their economic projections. Japanese exporters stand to benefit from reduced global trade tensions.

​Commodities reflect risk-on sentiment shift

​Oil showed an immediate response to the trade developments, with prices gaining 0.5%. Reduced trade war fears support demand expectations for industrial commodities. The energy sector benefits from both improved growth prospects and specific EU commitments to increase US energy purchases.

Gold decline to two-week lows demonstrates the shift away from safe-haven assets. The precious metal typically falls when risk appetite improves and trade tensions ease.

​Base metals have also responded positively to the trade clarity. Copper and aluminium, sensitive to global growth expectations, posted gains on improved manufacturing outlooks.

​The commodity complex now faces the challenge of sustaining gains if trade momentum continues or reversing quickly if negotiations stall.