European stock markets rallied on Monday, with the regional Stoxx 600 index climbing to a four-month high, as investors cheered the announcement of a framework trade agreement between the United States and the European Union.
The deal, which averts the threat of much steeper tariffs, has ignited a broad-based rally, with the autos sector leading the charge.
A transatlantic truce: deal details and market reaction
The Stoxx Europe 600 index rose 0.8% in early trading, with other major regional bourses also firmly in positive territory. The UK’s FTSE 100 was up 0.3%, France’s CAC 40 was higher by 1.1%, and Germany’s DAX was rising 0.7%.
The positive momentum is a direct reaction to the trade pact announced on Sunday by US President Donald Trump, following a pivotal meeting with European Commission President Ursula von der Leyen.
The agreement will see the EU face 15% tariffs on most of its exports to the US, including automobiles. This is a significant de-escalation from the 30% tariffs that President Trump had previously threatened to impose.
While the European leader stated that the 15% rate would be all-inclusive, President Trump later added that it did not include pharmaceuticals and metals, suggesting some details are still being clarified.
News of the deal had a more limited impact in currency markets, where the US dollar edged slightly higher on Monday. Bond yields in both the US and Europe slid.
Automakers lead the charge: a ‘great for cars’ deal
European carmakers, which have been particularly vulnerable to the threat of US tariffs, jumped on Monday morning. President Trump, in his announcement, specifically stated that the trade agreement will be “great for cars.”
The Stoxx Europe autos index led the gains in early morning deals, surging more than 1.5%.
Individual auto stocks saw strong performance: French car parts supplier Valeo was last seen up 5%.
Jeep maker Stellantis NV gained 3.1%, while Volkswagen AG was up 2.2%, Mercedes-Benz Group AG rose 1.8%, and Porsche AG jumped 3.5%.
The Stoxx 600 autos sector had been little changed for the year as of Friday, significantly missing out on Europe’s broader market rally, which suggests there is now room for this group to catch up.
The relief was also felt among other trade-sensitive sectors. Luxury goods makers LVMH and Kering SA added 0.90% and 0.34%, respectively.
Drinks makers, including Diageo Plc and Pernod Ricard SA, also gained. Shipping stocks, such as A.P. Moller-Maersk A/S and Hapag-Lloyd AG, were also in focus, given the freight industry’s high sensitivity to tariffs.
A turning point for European markets?
This rally marks a potential turning point for European stocks, which have been largely range-bound since May due to the persistent jitters around the outlook for global trade.
A UBS Group AG basket of stocks that are particularly sensitive to tariffs had underperformed this year, indicating that there is significant potential for this group to now catch up to the broader regional benchmark.
The positive sentiment is also being felt across the Atlantic.
US equity futures rose early on Monday as Wall Street prepared for an especially busy week. Investors are looking ahead to earnings reports from several major tech companies, a key Federal Reserve meeting, President Trump’s August 1 tariff deadline for other countries, and the release of key inflation data.
Futures tied to the Dow Jones Industrial Average climbed 171 points, or 0.38%. S&P 500 futures were higher by 0.41%, and Nasdaq 100 futures added 0.55%.
Wall Street is also coming off a winning week, which was fueled by strong corporate earnings and recent trade deals struck by the U.S. with other trading partners, including Japan and Indonesia.
The agreement with the EU now adds to this growing sense of a de-escalation in global trade tensions.
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