From Brief Tariff Relief to Renewed Trade Tensions

This week was busy in markets: from companies reporting results to new economic data. But what largely defined market sentiment was the recently agreed US-EU trade deal and Trump’s tariff escalation.

What was the US-EU trade deal? The agreement detailed a 15% tariff on goods exported to the US, and that the EU would spend billions on importing US energy products and weapons. This announcement came days before Trump’s 1st August deadline, which threatened to impose a 30% tariff on the EU. Combined with a handful of other trade deals agreed in the previous weeks, it temporarily helped settle investor sentiment, as any further escalation in trade tensions between the EU and US would have been a very large risk for the global economy.

What was the market reaction? Off the back of this relief, the market reaction was initially very positive. European and US equities ticked up at the start of the week, combined with a strengthening of the dollar.

Yet as the dust settled, investors bet that EU-US trade deal would hurt the European economy. Hence, the euro was down by 1% in Monday afternoon trading and continued depreciating throughout the week. By Thursday’s close these currency moves exacerbated, with the Euro index down 2.6%, and the Dollar index up 2.5% (these indices measure the value of the respective currencies against a basket of peers).

Trade Tensions Escalating: Despite agreeing numerous trade deals, Trump stuck to his word of his August 1st deadline as he raised his threatened tariffs on over 90 countries on Friday morning. These tariffs will come into effect in a weeks’ time on the 7th August. The phrase ‘Trump Always Chickens Out’ (TACO) proved wrong for the first time since his tariff regime began. Global stocks weakened on Friday morning as Trump pushed ahead with his trade war.

Whilst at the beginning of the week we thought trade tensions were easing, Trump didn’t chicken out. This serves as a reminder that while markets may find relief, policy shifts and geopolitical developments can still drive sharp market moves.

The Noise

• In terms of monetary policy, this week the Federal Reserve (The Fed) held the interest rate steady at 4.5%, where it has remained since December 2024. The Fed chair, Jerome Powell, cited an uncertain economic outlook with Trump’s tariff regime as the main driver for their decision. The Fed resisted pressure from Trump to cut interest rates despite the ongoing tariff uncertainties.
• The bond markets showed resilience this week despite escalating trade tensions. Whilst equity and currency markets were reactive to Trump’s renewed trade tariff regime, bond yields (which move inversely to prices) remained stable. This stability suggests that investors are still seeking safety amid uncertainty, maintaining confidence in fixed-income assets as a hedge against market volatility.
• Commodity markets saw mixed signals this week, with oil prices slipping amid concerns over rising supply and weakening demand forecasts. Meanwhile copper markets experienced significant volatility this week following President Trump's announcement of a 50% import tariff on semi-manufactured copper products, effective from August 1st. This move led to a sharp 20% drop in U.S. copper futures. This divergence highlights how geopolitical tensions continue to create volatility across different market segments.