The European Parliament\u2019s trade committee has voted to back legislation that would remove European Union duties on a range of United States goods imports. The move advances the EU\u2019s implementation of an EU-US trade deal and keeps the bloc on track to meet US President Donald Trump\u2019s 4 July compliance deadline, reducing the risk of an immediate cross-Atlantic tariff dispute.<\/p>\n
In markets, the euro saw a mild pullback after the committee decision. Even so, EUR\/USD was still up 0.1%, trading at about 1.1647 at the time of writing.<\/p>\n
The European Parliament committee’s vote to cut US tariffs significantly de-risks the outlook for the Euro. We believe the slight uptick in EUR\/USD to 1.1647 is just the beginning of a potential move higher ahead of the July 4 deadline. With recent Eurostat data showing Eurozone inflation holding firm at 2.6% for May, the European Central Bank has less pressure to cut rates, which further supports the currency.<\/p>\n
We are now more constructive on European equities, particularly German exporters who have been under pressure from this trade friction. German exports to the United States fell by 1.9% in the last reported quarter, a drop we largely attribute to these tariff threats. Looking back at the 2018-2019 period, similar de-escalations saw the German DAX index rally sharply, a pattern that provides a strong historical precedent for the coming weeks.<\/p>\n
This resolution of a major trade dispute should also suppress market volatility. The Euro Stoxx 50 Volatility Index (VSTOXX), currently hovering around 14, seems elevated given that a key tail risk is being removed. We see an opportunity in selling volatility, perhaps through writing out-of-the-money puts on broad European indices as the July deadline approaches.<\/p>\n
Focus should also be placed on the European auto sector, which was a primary target of the now-averted tariffs. Companies like Volkswagen and BMW derive a significant portion of their revenue from the US market, with auto sales data from May already showing a slight recovery in North American demand. We view long call option spreads on these specific stocks as an effective way to gain levered exposure to this relief rally.<\/p>\n","protected":false},"excerpt":{"rendered":"
EU trade committee backs cutting US import duties, supporting EU-US deal, easing tariff threat, boosting euro sentiment.<\/p>\n","protected":false},"author":103,"featured_media":16971,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[9,48,56,87,97],"class_list":["post-54425","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates","tag-dollar","tag-equities","tag-euro","tag-europe","tag-volatility"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\n\t\t