Economists appear to be revising downward their expectations of the impact tariffs will have on the U.S. economy.
✅ Why Markets Have Moved On
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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.
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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.
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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
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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
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The U.S.–EU trade deal has removed a key market overhang, but lacks enforcement certainty and long-term impact.
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Markets are no longer reacting strongly, having already priced in most of the positives.
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The spotlight now is on what comes next—not what’s already happened.
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Fed signals, corporate earnings, and further trade breakthroughs (especially with China) are now front and centre as potential catalysts.
