Global Economy & Markets, Weekly Roundup 29/07/25
The US and the European Union announced the outline of a trade agreement, with 15% tariffs on most European exports to America
Risk appetite remained robust, gaining fresh traction from recent framework trade deals between the US and major trading partners. Recall that these agreements have come ahead of the August 1st deadline, when increased US “reciprocal” tariffs were set to take effect.
Global equity markets rose, with the benchmark MSCI ACWI index up by +1.4% in the past week. US bourses led the increase, with the S&P500 reaching fresh record highs (6389), also supported by a positive flow of Q2:2025 corporate results. The US dollar appreciated by +1.7% against the euro in the past two days to €/$1.153.
The US agreed that Japan’s and the EU’s exports of goods to the US will face a tariff rate of 15%. That custom duty is higher than the current 10%, albeit lower than the previously threatened 25% & 30%, respectively. Furthermore, the same levy will apply to Japan’s and the EU’s exports of automobiles, versus a 27.5% in place until now, considering product-based US tariffs.
Although some official details are pending, according to communication so far, certain EU products (aircrafts & components, some chemical and pharmaceutical products), will be exempted from tariffs. The EU agreed to eliminate tariffs on imports of US-made industrial goods and work on reducing levies while also facilitating market access for other US products.
Other parts of the deals include, inter alia, increased investment in the US from entities based in Japan and the EU, as well as higher purchases of US products (e.g. energy, agricultural, defense-related, commercial aircrafts) and an easier access of US-made automobiles, albeit there will be scope for further negotiations.
In all, recent US trade deals (including also with Indonesia and Philippines), suggest that on a trade-weighted basis, a further increase in US tariffs is due to c.18% from 2.4% in early January. Such a development poses upside risks to US consumer prices and downward ones for US GDP growth, as higher customs duties resemble, to some extent, the effects of a higher tax on consumption. That said, the increase will be less intense than previously threatened.
As a result, the Fed could resume lowering interest rates in the next months as policy rates are restrictive, albeit will stand pat on July 30th at a range of 4.25% - 4.50%, waiting for more clarity regarding the US trade policy post August 1st and August 12th (China). Investors’ expectations as implied by FFR futures pricing continue to lean towards -100 bps in the next twelve months.
Higher tariffs, were to remain in place, would raise over $2 trillion in the next decade, mitigating the deficit creation impact of the “One Big Beautiful Bill Act” (OBBBA). At the same time, following the passage of the GENIUS Act, a new source of demand for short-term US Treasuries could gradually derive from the growing use of stablecoins for cross-border payments and overall digital assets market activity.
Finally, the ECB kept on July 24th the Deposit Facility Rate (DFR) at +2.0%. Recall, that following a reduction of 200 bps since June 2024, the DFR stands well within the central range of estimates for the neutral levels. At the same time, CPI inflation has aligned with the 2% target.
Risk appetite remained robust, gaining fresh traction from recent framework trade deals between the US and major trading partners. Recall that these agreements have come ahead of the August 1st deadline, when increased US “reciprocal” tariffs were set to take effect.
Global equity markets rose, with the benchmark MSCI ACWI index up by +1.4% in the past week. US bourses led the increase, with the S&P500 reaching fresh record highs (6389), also supported by a positive flow of Q2:2025 corporate results. The US dollar appreciated by +1.7% against the euro in the past two days to €/$1.153.
The US agreed that Japan’s and the EU’s exports of goods to the US will face a tariff rate of 15%. That custom duty is higher than the current 10%, albeit lower than the previously threatened 25% & 30%, respectively. Furthermore, the same levy will apply to Japan’s and the EU’s exports of automobiles, versus a 27.5% in place until now, considering product-based US tariffs.
Although some official details are pending, according to communication so far, certain EU products (aircrafts & components, some chemical and pharmaceutical products), will be exempted from tariffs. The EU agreed to eliminate tariffs on imports of US-made industrial goods and work on reducing levies while also facilitating market access for other US products.
Other parts of the deals include, inter alia, increased investment in the US from entities based in Japan and the EU, as well as higher purchases of US products (e.g. energy, agricultural, defense-related, commercial aircrafts) and an easier access of US-made automobiles, albeit there will be scope for further negotiations.
In all, recent US trade deals (including also with Indonesia and Philippines), suggest that on a trade-weighted basis, a further increase in US tariffs is due to c.18% from 2.4% in early January. Such a development poses upside risks to US consumer prices and downward ones for US GDP growth, as higher customs duties resemble, to some extent, the effects of a higher tax on consumption. That said, the increase will be less intense than previously threatened.
As a result, the Fed could resume lowering interest rates in the next months as policy rates are restrictive, albeit will stand pat on July 30th at a range of 4.25% - 4.50%, waiting for more clarity regarding the US trade policy post August 1st and August 12th (China). Investors’ expectations as implied by FFR futures pricing continue to lean towards -100 bps in the next twelve months.
Higher tariffs, were to remain in place, would raise over $2 trillion in the next decade, mitigating the deficit creation impact of the “One Big Beautiful Bill Act” (OBBBA). At the same time, following the passage of the GENIUS Act, a new source of demand for short-term US Treasuries could gradually derive from the growing use of stablecoins for cross-border payments and overall digital assets market activity.
Finally, the ECB kept on July 24th the Deposit Facility Rate (DFR) at +2.0%. Recall, that following a reduction of 200 bps since June 2024, the DFR stands well within the central range of estimates for the neutral levels. At the same time, CPI inflation has aligned with the 2% target.