30 July 2025
Georgios Leontaris
Chief Investment Officer, Switzerland and EMEA, HSBC Private Bank and Premier Wealth
US President Trump and European Commission President Ursula von der Leyen met at a golf resort in Scotland over the weekend, and after a 40-minute discussion, announced the forging of a trade agreement. Key headlines include the following:
Similar to other recent trade deals involving the US, the full text of the agreement hasn’t yet been released, which naturally raises a number of questions:
According to our estimates, a 10% tariff on European exports to the US would lower Eurozone growth by approximately 0.3% through reduced demand and higher uncertainty. Moving from a 10% baseline tariff to a 15% rate may imply a further small (0.1% to 0.2%) hit to economic growth, whereas it shouldn’t have a meaningful increase to inflation.
On the other hand, the lowering of auto tariffs from 27.5% to 15% may alleviate part of the pressure whereas the achievement of a trade deal on its own can reduce uncertainty and stabilise sentiment, off-setting part of the drag to growth.
Although questions remain regarding the treatment of some sectors - let us not forget that the EU was reportedly preparing punitive measures of €93 billion in the event that US tariffs were lifted to 30% in August. Counter tariffs would have risked a retaliatory spiral that would have led to higher prices along with a more meaningful hit to growth.
Although delays can’t be ruled out, tariff changes are expected to come into force on 1 August. However, the sectoral tariffs are likely to be affected by the scheduled release of Section 232 investigations. Given some conflicting announcements or misunderstanding were cited in previous trade deals, the market will closely watch any further announcements made by officials on both sides.
The EU and the US account for 44% of global GDP and 30% of global trade in goods and services. US exports to Europe support 2.3 million jobs, whereas European companies employ 3.4 million people in the US.
European equities have traded in a range this summer, underperforming their US and global peers given lingering trade uncertainty and a stronger euro which weighed on corporate earnings prospects. Although we maintain a preference for US equities over Europe, we continue to see some opportunities in the Eurozone.
Our preferred sectors include Financials, which continue to outperform, helped by a strong earnings season (with 30% of Stoxx 600 companies having reported so far, Q2 results show earnings beats of 7% for the sector). We also maintain an overweight on Industrials and Utilities, which include beneficiaries from defence and infrastructure spending plans.
Although we remain underweight on Consumer Discretionary, the new deal may provide some near-term relief to the sector given that auto tariffs are set to fall to 15% from 27.5% as soon as this Friday.
Some luxury names may also find a more stable footing or extend signs of bottoming out. We keep our more moderate stance for now on trade and Section 232 exposed sectors, however, given that the combination of higher tariffs and a firmer EUR can still weigh on near-term earnings and relative performance until further clarity is achieved.
In the fixed income space, we’ve a preference for EUR investment grade credit of medium-to-long duration (7-10 years). Despite spreads being tight, we believe EUR investment grade bonds can better compensate duration risk and offer attractive yields.
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