The market is experiencing "aesthetic fatigue" regarding trade agreements, and the EU-US 15% tariff agreement has failed to disrupt the stock market
The US-EU trade agreement failed to boost market risk appetite, leading to low market volatility, with US stocks closing flat. Although Trump called it "the most significant agreement in history," the market's reaction was tepid, indicating diminishing marginal effects of the new agreement. Analysts pointed out that investors are more focused on hard data regarding economic and policy prospects rather than trade agreements. The US-EU agreement did not stimulate risk assets, partly due to unfavorable terms for Europe. Market attention is gradually shifting towards the US-China trade agreement
The Zhitong Finance APP noted that despite Trump calling it "the most significant agreement in history," the US-EU trade agreement failed to boost market risk appetite, reflecting that the marginal effect of each new agreement is diminishing.
The global market reaction on Monday was muted: European stocks and the euro fell slightly, while US stocks remained basically flat. In contrast, when the US-Japan trade agreement was announced last week, both Japanese and US stock markets surged.
The lukewarm response to the US-EU agreement marks a continued decline in Trump's trade policy's ability to provoke significant market volatility. After the sell-off triggered by the announcement of the tariff increase plan on April 2, the market gradually realized that the initial tax rates were merely bargaining chips, and the 15% tariff level is the current reality, leading to reduced subsequent fluctuations.
Dilin Wu, a research strategist at Pepperstone Group in Melbourne, stated, "The market's reaction to trade agreements has become more rational, especially against the backdrop of recent fluctuations in interest rate cut expectations. Investors are more focused on verifying hard data regarding economic and policy prospects rather than over-interpreting trade agreements."
Factors driving the cooling response to the US-Japan and US-EU agreements include: the 15% tariff rate has become a market consensus, and more importantly, significant market drivers are about to emerge—this week's Federal Reserve meeting, US GDP and non-farm payrolls, and the ongoing second-quarter earnings season for US stocks.
Taosha Wang, a portfolio manager at Fidelity International Hong Kong, stated in an interview, "The likelihood of trade headlines truly shaking the market has significantly decreased. I believe the tail risks associated with tariffs have been greatly reduced."
Another reason the US-EU agreement failed to stimulate risk assets is that some investors believe the terms are unfavorable to Europe.
According to the agreement, the tariffs faced by EU export goods are much higher than the rates imposed on US imports. European Commission President Ursula von der Leyen stated that this is to rebalance the region's trade surplus.
While investors' attention is shifting away from Trump's trade agreements, there are still agreements that can stir the market—the US-China trade agreement. US Commerce Secretary Wilbur Ross indicated that extending the current trade truce for 90 days is the most likely outcome of the Stockholm talks between the two countries.
Billy Leung, an investment strategist at Global X Management, pointed out, "The market is somewhat fatigued aesthetically. Don't forget we are facing multiple uncertainties: the US-China negotiations are entering their second day, more trade agreements are yet to be announced, the Federal Reserve's decision is imminent, and there are earnings reports from US giants."
