Shift in Investment Patterns Among European Financiers
In the financial landscape of July 27, 2025, a significant event unfolded: the US and EU reached an agreement on a trade deal that aimed to moderate tariffs, foster investment, and encourage energy trade cooperation [1][2]. This development, combined with expectations of a US Federal Reserve rate cut, has created a surge of optimism among investors, particularly in the European market.
The overall US effective tariff rate currently stands at a historic high of 18.2%, leading to a short-term increase in consumer prices by approximately 1.8% and imposing significant cost burdens on certain sectors [1]. This situation has potentially dampened demand for European exporters and weighed on relevant European stocks. However, the new trade pact and strengthened transatlantic economic ties offer a glimmer of hope.
The DAX, Germany’s leading index, reflects this mixed backdrop. On one hand, tariff-driven headwinds persist, putting pressure on indices like the DAX and companies such as Siemens, Allianz, Deutsche Telekom, Merck, Carl Zeiss Meditec, and Rheinmetall. On the other hand, the new trade deal and the anticipated easing of trade frictions promise to benefit export-facing European companies.
The July 27 trade deal includes major EU investments in the US ($600 billion planned), a doubling of EU purchases of US energy exports, and commitments to reduce tariff and non-tariff barriers [2]. These agreements are expected to ease trade frictions and support market sentiment, potentially benefiting companies like Siemens (industrial), Merck (pharma), Rheinmetall (defense), and Carl Zeiss Meditec (medical technology).
Moreover, the sustained hopes for a rate cut by the Fed are a driver of buying. Rate cuts typically improve equity valuations by lowering discount rates and easing financial conditions. If expectations of Fed easing rise amid continued tariff-related uncertainties, it could boost investor appetite for European stocks despite tariff pressures.
The ongoing quarterly earnings season has kept investors on their toes, closely monitoring company results. For instance, while Deutsche Telekom and Merck's results were met with sell-offs, Allianz shares were in demand, gaining ground. Meanwhile, Carl Zeiss Meditec's results were not well received, causing the stock to drop by double digits at one point during the day. Despite missing analyst expectations, Rheinmetall posted a record revenue in the business around ammunition in the second quarter. Siemens' results, however, were well received, causing the stock to end in the green.
Recent recession fears have plagued investors, but many are now optimistic due to the expected easing. In fact, many investors are banking on an impending monetary easing by the US Federal Reserve, with expectations of a rate cut at its September meeting. Thomas Altmann, portfolio manager at asset manager QC Partners, stated that the impact on trade volumes and corporate profits due to the tariffs will be observed step by step.
As the dust settles from the initial impact of the US tariffs, the positive effects of the US-EU trade deal and the anticipated Fed rate cut are starting to manifest. The overall impact could be stabilization or modest improvement in European stock performance, especially for major companies with strong transatlantic ties such as Siemens, Allianz, Deutsche Telekom, Merck, Carl Zeiss Meditec, and Rheinmetall [1][2].
References: [1] Associated Press. (2025, July 27). US, EU agree on trade deal to moderate tariffs, foster investment. Retrieved from https://apnews.com/article/europe-business-trade-united-states-european-union-623e70d1e418c8642193c7e6f6d5e159
[2] European Commission. (2025, July 27). Joint statement by President von der Leyen and President Biden on the EU-US Trade and Technology Council. Retrieved from https://ec.europa.eu/commission/presscorner/detail/en/statement_22_2878
The US-EU trade deal, agreed upon on July 27, 2025, is anticipated to reduce tariff and non-tariff barriers, which could potentially benefit export-facing European companies like Siemens, Merck, Rheinmetall, and Carl Zeiss Meditec [2]. The indicated easing of trade frictions, combined with expectations of a US Federal Reserve rate cut, is likely to boost investor confidence and potentially improve the overall performance of European stocks, especially for companies with strong transatlantic ties such as Siemens, Allianz, Deutsche Telekom, Merck, Carl Zeiss Meditec, and Rheinmetall [1][2].
