EU and US reach landmark trade deal

General market commentary

Equity markets ended higher on Friday, with the S&P 500 and Nasdaq reaching new record highs. The gains were led by materials and industrial shares, while the energy and communication sectors lagged. Investor optimism was supported by a solid start to earnings season and falling bond yields, as the 10-year US Treasury yield dipped to 4.38%, down from its May peak near 4.60%. Meanwhile, durable goods orders dropped by 9.3% in June, a smaller decline than expected, and excluding transportation, orders actually rose slightly. The US dollar strengthened against major international currencies, while WTI oil prices fell on reports that US firms may resume limited production in Venezuela. Other markets were softer, with equities in Asia and Europe closing lower amid ongoing EU-US trade deal negotiations.

The equity market continues to display resilience, underpinned by solid corporate earnings, easing macroeconomic uncertainty, and stable economic data. Nearly a third of S&P 500 companies have reported earnings, with a striking 82% beating estimates, prompting upward revisions to second-quarter profit forecasts. The forward momentum has been fuelled by robust performance from the so-called Magnificent 7, strong demand in AI-related sectors, and a weaker US dollar boosting overseas earnings. While volatility has remained unusually low, upcoming catalysts such as major technology earnings, the Federal Reserve meeting, and the monthly jobs report could test the market’s recent calm.

Looking ahead, fundamentals appear supportive but risks remain. Trade policy clarity is gradually improving with multiple bilateral agreements signed ahead of the August 1 deadline, though tariffs are trending higher overall. The economic backdrop still suggests a “Goldilocks” environment, with stable labour market indicators and contained inflation pressures. However, investors should be mindful of seasonal volatility, potential policy shifts, and signs of complacency in some corners of the market. With valuations stretched, further gains may increasingly rely on earnings delivery. We believe selective exposure to quality shares across sectors, along with appropriate diversification, will be essential for navigating the remainder of the year.

Latest market and economic update

The US and EU have agreed a landmark trade deal imposing a 15% tariff on EU goods entering the US, averting steeper levies due August 1. The EU committed to major energy and defence purchases and $600 billion in US investment. Markets welcomed the clarity, with European automakers and US defence and energy shares seen as key beneficiaries.

The U.S. and China are expected to extend their tariff truce by 90 days during trade talks in Stockholm, avoiding new tariffs or escalation. Both sides aim to clarify unresolved issues, including U.S. concerns over China’s industrial overcapacity. President Trump said a deal is “very close,” while China reaffirmed its commitment to dialogue and mutual respect.

Asian equities

U.S. futures climbed Sunday evening after the US and EU reached a framework trade deal, easing market tensions. S&P 500 futures rose 0.4%, Nasdaq 100 futures added 0.5%, and Dow futures advanced 0.3%. Investors now turn attention to a pivotal week featuring the Federal Reserve’s policy decision, key inflation data, and earnings from major tech giants.

European equities ended mostly lower on Friday as investors digested mixed earnings and awaited US-EU trade updates. The STOXX 600 slipped 0.3%, weighed by industrials and healthcare, while the STOXX 50 edged up. Losses in Schneider Electric, Airbus, ASML, and Nokia offset gains in LVMH and Volkswagen, which lifted luxury and auto sectors after strong results.

The US dollar slipped on Monday, with the index dipping to around 97.5 as the euro rebounded to 1.1757. The euro’s strength followed a US-EU trade deal that eased tariff tensions, lifting market sentiment. Despite recent dollar gains, renewed euro demand and cautious Fed expectations are now weighing on the greenback ahead of key economic data.

Oil prices rose slightly from three-week lows following a US-EU trade deal easing tariff concerns and boosting demand expectations. Brent and WTI gained 0.3%, supported by improved sentiment and long-term US energy export prospects. However, potential OPEC+ output increases and Venezuela’s return capped gains, while investors await Federal Reserve and economic data updates.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Tesla has signed a major chip supply deal with Samsung Electronics, boosting the South Korean firm’s struggling foundry business. The $16.5 billion agreement, lasting until 2033, helps Samsung amid increasing pressure from rivals like TSMC, which leads in advanced chip production. The deal also supports South Korea’s US trade and technology partnerships.

LVMH is in talks to sell its fashion label Marc Jacobs, with potential buyers including Authentic Brands Group and WHP Global. The deal, valued around $1 billion, aligns with LVMH’s recent brand streamlining efforts. Despite a slight Q2 sales miss, the group sees recovery signs, particularly in China, amid ongoing luxury market challenges.

Volkswagen reported a €1.3 billion first-half hit from U.S. tariffs, cutting its full-year profit margin forecast to 4-5% from 5.5-6.5%, and expecting flat sales. The company, hit by lower U.S. deliveries and higher costs, plans accelerated cost-cutting. Luxury brands Audi and Porsche faced steep losses but are expected to recover from 2026.

Valeo shares fell over 16% after the company cut its annual sales forecast by at least €1 billion to around €20.5 billion, blaming a weaker dollar and declining global car sales. CEO Christophe Périllat said cost-cutting efforts would help offset pressure from U.S. tariffs. Shares later trimmed losses to trade down 6.6% by mid-morning.

Intel shares dropped 8% on Friday after CEO Lip-Bu Tan warned of exiting chip manufacturing without a major customer, signalling drastic cost cuts. Tan plans workforce reductions, halting European plants, and slowing Ohio facility work amid widening losses. Intel’s foundry ambitions face challenges, deepening reliance on rivals like TSMC and raising doubts about its future.

Country Garden agreed key restructuring terms with bank creditors, paving the way for a broader debt deal. The company proposed a $178 million compensation to recover seized collateral, addressing creditor concerns. This agreement is crucial for restructuring over $14 billion in debt amid China’s prolonged property market downturn. A court hearing is scheduled for August 11.

Morgan Stanley upgraded Estée Lauder to Overweight, expecting a Q4 revenue beat and positive multiyear growth. Improved margins, operational gains, and digital reinvestment underpin optimism. The Profit Recovery and Growth Plan’s full impact is anticipated in FY27, with EPS projected to rise to $3.41. The firm praises enhanced forecasting and online strategy.

JP Morgan downgraded Procter & Gamble to Neutral from Overweight, citing weak consumption in key markets and a less promising margin outlook for fiscal 2026. Despite strong execution and restructuring, organic sales growth is expected to remain subdued. Cost savings offer limited upside, with a balanced risk-reward and a $170 price target for December 2026.

Oppenheimer upgraded Carvana to Outperform, citing underestimated long-term growth and profit potential despite a recent share rebound. They raised the 12–18-month price target to $450, highlighting cost efficiency, stronger cash flow, and market share gains driven by tariffs increasing new car prices. EBITDA forecasts for 2023 and beyond were also raised.

Barclays analysts see easing tariff concerns fueling a breakout in European equities after months of stagnation, following a U.S.-Japan trade deal with a 15% tariff and a similar EU-U.S. agreement. Despite potential growth impacts, much of the risk is priced in. Barclays favours banks and telecoms, cautiously re-engaging with exporters amid stabilising Chinese growth.

Upcoming data and events

This week is packed with earnings from Microsoft, Apple, Amazon, Meta, Alphabet, Intel, Qualcomm, Boeing, Ford, PayPal, Visa, Mastercard, and Procter & Gamble. Key policy decisions from the Fed, BoJ, BoC, and Brazil’s central bank are due. Markets will also digest US GDP, jobs, PCE, and ISM data, plus global GDP and inflation figures.

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