European stocks are up 0.93% today, and the STOXX Europe 600 index is again approaching an all-time high. (By contrast, S&P 500 futures are only up 0.28% this morning.) Given that the U.S. just slapped Europe with a 15% tax on all its exports to America, why are investors in Europe so bullish?
One theory is that they are trading as if one of two conditions will turn out to be true:
That would explain why, this morning, Goldman Sachs moved its estimate of E.U. GDP upward by 0.1%, following the deal, according to a note from Sahar Islam and Ayushi Mishra.
Analysts hint this morning that E.U. officials appear to have pulled the wool over Trump’s eyes in the negotiations. The deal includes $750 billion in “strategic purchases,” $600 billion of private investment, and “vast quantities” of military equipment purchases. But there is near unanimity on Wall Street that the private investment was going to happen anyway in the normal course of business.
The military purchases are unsurprising given that Russia is waging war on Europe’s eastern flank. NATO will be happy to buy from the U.S.—it needs all the weapons it can get.
No wonder President of the European Commission Ursula von der Leyen said yes so quickly.
And then, waiting in the wings, is the biggest potential upside surprise to global stocks of them all: VOS Selections vs Trump. This case was brought by a group of small American businesses angry that their bills are going up because of the tariffs. They argue that Trump’s assertion of a national emergency under the International Emergency Economic Powers Act of 1977 is not valid for him to make trade deals without Congressional approval. (Congress is the usual body that approves trade deals.) An appeals hearing is set for July 31, and it is likely that, in turn, the case will go to the U.S. Supreme Court in Washington, D.C.
“If the IEEPA is deemed inadmissible, the status of the trade deals is also unclear,” JPMorgan’s Jahangir Aziz and Bruce Kasman reminded clients this morning.
If they eventually declare the tariffs illegal, expect stocks to leap.
Here’s a snapshot of the action prior to the opening bell in New York:
