A day after the new trade agreement – which will see most EU exports to the US face a 15 per cent levy – and European markets are already experiencing some of the volatility anticipated by asset manager UBS.
After opening in the green on Monday morning, it was clear the long-awaited clarity provided by the recent deal had alleviated some tensions. This was what Annabelle Miller, a portfolio manager at asset manager ECP, had expected.
“Markets hate uncertainty, and so finally we have some certainty about the level of tariffs to be implemented,” she told InvestorDaily.
Germany’s DAX jumped by 0.86 per cent, while France’s CAC 40 index rose by 1.1 per cent – lifting the pan-European Stoxx 600 index to its highest point since late March ahead of “Liberation Day”.
However, the immediate rally proved to be short-lived, with numbers tumbling after French Prime Minister François Bayrou criticised the signing of the deal as a “dark day” for the EU – condemning the region for giving in to US President Donald Trump’s threats.
Germany’s DAX, France’s CAC and the Stoxx 600 all closed lower, while the euro, which had been holding strong, fell by almost 1 per cent against the US dollar.
Miller said the unpredictable and challenging nature of tariffs might encourage European countries to respond by focusing on domestic investment instead.
“From my vantage point, it seems like it will just encourage countries to invest internally,” she said.
She pointed to announcements this year which already support this thesis. In particular, Germany’s enormous fiscal package consisting of defence spending, a €500 billion infrastructure fund, and an increase in the allowable structural deficit which has already seen markets rallying.
“That’s now being mirrored by the private sector, which has announced they’re intending on spending a few hundred billion over the next several years within Germany,” she said.
Miller explained that focusing inwards is a way to “balance out” whatever negative consequences that might occur due to tariffs.
In regard to the lessons Australia can take away, Miller said looking for a “speedy resolution” to our own trade uncertainty with the US should be a primary focus.
“Uncertainty is the biggest overhang for businesses. It creates a lot of problems in terms of laying out a plan to invest capital,” she said.
She explained that already we have seen a lot of companies shelve projects or delay capital expenditures because of the uncertainty, and that in turn creates problems for growth down the line.
“As soon as you reach an agreement, businesses can move forward with certainty and start putting in place plans for projects and capital expenditures,” she said.
