Economists appear to be revising downward their expectations of the impact tariffs will have on the U.S. economy.
✅ Why Markets Have Moved On
The U.S.–EU framework includes a 15% tariff on most EU goods and EU commitments to invest $600 billion and buy $750 billion in U.S. energy over three years The Guardian+15Reuters+15The Economic Times+15.
While the deal removes the immediate risk of escalating U.S. tariffs, analysts note that it’s asymmetric—favouring the U.S.—which limits its positive impact ReutersReuters.
Investors initially cheered the agreement but have since tempered expectations after examining enforcement doubts and capacity constraints ReutersWall Street JournalAInvest.
⚠️ Why It’s No Longer Enough
Relief Rally Is Behind Us
Markets already responded dramatically to the news; equity futures and risk assets rallied, but now these moves have faded TheStreet Pro+13Reuters+13FXStreet+13monetamarkets.com+15YouTube+15Financial Times+15.Deal Limitations
The trade framework lacks binding legal enforcement. The $250 billion/year energy purchase goal seems out of reach given current U.S. export infrastructure (~$80 billion/year today) Wall Street Journal+1AInvest+1.Economic Risks Remain
Slower global growth, tariffs on other major trade partners (e.g., China, Canada), and geopolitical frictions are still on the menu ReutersThe AustralianReuters.Valuation & Sentiment are Stretched
Global equity indices have surged over 30% since spring, raising concerns about overbought conditions and narrowing leadership breadth Reuters+12The Australian+12Reuters+12.
🔍 What Could Be the Next Catalyst?
Market attention is shifting towards several key drivers:
🌐 U.S.–China Trade Talks
Investors hope for a credible extension or partial resolution to tariff tensions—especially with the August 12 deadline looming United States – English+7FXStreet+7The Economic Times+7The Australian+1monetamarkets.com+1.
🏦 Central Bank Signals
The upcoming Fed and Bank of Japan meetings are under scrutiny. Markets are tracking whether Powell hints at future rate cuts or reaffirms a “higher-for-longer” stance. Fed tone could dictate the next rally—or trigger volatility FXStreet.
💼 Corporate Earnings
With mega-cap U.S. tech firms set to report—Apple, Microsoft, Amazon, Meta—earnings surprises could either justify stretched valuations or trigger corrections MarketWatch+1The Economic Times+1.
🛢️ Energy Markets & OPEC+ Moves
The deal’s energy provisions may lift oil prices temporarily, but long-term gains depend on OPEC+ strategy, global supply balance, and trade-related demand shifts AInvest.
🧭 Market Positioning Table
| Catalyst | Potential Impact |
|---|---|
| U.S.–China tariff developments | Renewed trade clarity could fuel risk-on tilt |
| Fed commentary & macro data | Dovish signals may support equities, hawkish tone could reverse markets |
| Tech earnings | Strong beats could power the rally; misses risk correction |
| Energy supply/demand shifts | Could create new momentum in commodities and cyclical sectors |
🔎 Summary
The U.S.–EU trade deal has removed a key market overhang, but lacks enforcement certainty and long-term impact.
Markets are no longer reacting strongly, having already priced in most of the positives.
The spotlight now is on what comes next—not what’s already happened.
Fed signals, corporate earnings, and further trade breakthroughs (especially with China) are now front and centre as potential catalysts.
