Morning Bid: US and EU avert tariff bust-up

A look at the day ahead in European and global markets from Gregor Stuart Hunter

We may be hearing a lot about the art of the deal this week.

With the U.S. tariff deadline bearing down on the global economy at the end of this week, it's the EU's turn to announce a trade deal with the White House, albeit one that is skewed in the U.S.'s favour.

The agreement lowers the baseline tariff on most European imports to 15% from the Trump administration's earlier threat of a 30% rate, while committing the EU to invest some $600 billion in the United States.

Governments around the world are racing to reach trade agreements with the U.S. to avert the imposition of the Liberation Day tariffs that were first announced on April 2.

Talks are also taking place between the U.S. and China in Stockholm on Monday, with reports indicating another 90-day extension to the tariff deadline may be in the works.

As Vasu Menon, managing director for investment strategy at OCBC in Singapore, puts it: "The 15% tariff is a pleasant surprise as it is half of what the U.S. threatened to impose on the EU, and it offers hope that other major trading partners of the U.S. could also strike deals of this nature soon."

The deal appears to mirror the one struck between the U.S. and Japan last week, with a pattern emerging of unilateral investment in exchange for a lower tariff. That could indicate what to expect as talks go down to the wire with other big economies like China, South Korea and Taiwan.

The new U.S. tariff rate on the EU extends to medicinal and pharmaceutical products and motor vehicles, which were the bloc's biggest exports to the U.S. last year. Aircraft and their components, the next biggest segment, will have zero-for-zero tariffs, though the U.S. will keep in place a 50% tariff on steel and aluminium.

Investors welcomed the trade deal that avoids a trade war and could bring clarity for companies.

Pan-region futures climbed 1%, German DAX futures rose 1%, and FTSE futures gained 0.5%. U.S. equity futures rose 0.4% following the deal, putting the S&P 500 on track for a sixth consecutive day of gains and potentially a new peak.

Earnings from Heineken will headline the corporate diary on Monday as the world's second-largest brewer counts the cost of tariffs. However, the firm's shares will likely get a boost from the newly-agreed framework deal along with automakers and drugmakers in the region.

Key developments that could influence markets on Monday:

Earnings: Heineken NV, Wise PLC, EssilorLuxottica SA

UK data: CBI Distributive Trades for July

Debt auctions: France 3-month, 7-month, 9-month and 1-year

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(By Gregor Stuart Hunter; Editing by Jacqueline Wong)