European markets reach new highs as US-China tariff cuts boost DAX and FTSE
European equity markets kicked off the new week with strong gains, as the Germany 40 (DAX 40) reached a fresh record high and the FTSE 100 hit an almost six-week high.
Their gains followed the announcement that the United States (US) and China have agreed to temporarily reduce tariffs, alleviating concerns about a prolonged trade war and the risk of recession. The agreement includes a reduction of tariffs by 115%, lowering US tariffs to 30% and China’s tariffs to 10% for the next 90 days.
Trade agreements boost European markets
The earlier and more substantial tariff reductions reduce growth risks in both the US and China, which is great news for the Germany 40, given that the US and China are both huge markets for German exports. The [indices|FTSE 100] has received additional support in recent sessions from a 25 basis point (bp) rate cut from the Bank of England (BoE) last week, as well as the signing of the US-UK trade deal. While the finer details are still being finalised and a 10% baseline US tariff remains on most UK goods, US tariffs on UK cars drop from 27.5% to 10% for 100,000 vehicles annually, and steel/aluminium tariffs fall from 25% to 0%.
Attention shifts to peace talks and economic data
With the noise around tariffs set to ease for the moment, attention this week will focus on peace talks in Turkey between Ukraine and Russia, and Thursday night’s UK first quarter (Q1) gross domestic product (GDP) release. The expectation is for Q1 growth of 0.6%, which would see the annual rate at 1.2%. This outcome, along with last week’s Bank of England 25bp rate cut, is expected to see the BoE keep interest rates on hold at 4.25% until it delivers another 25bp rate cut in September.