Stock markets were muted on Monday after President Trump threatened the European Union with a 30 percent tariff on its goods if a deal couldn’t be reached by the end of the month.
The S&P 500 was little changed, recovering from a slight fall in early trading.
The Stoxx Europe 600 index slipped 0.3 percent, as traders weighed the economic threat to the region from higher tariffs. German Chancellor Friedrich Merz said over the weekend that 30 percent tariffs would hit his country’s exporters “to the core.”
In addition to the European Union, Mr. Trump also threatened Mexico with a 30 percent tariff rate in letters posted on social media on Saturday.
The letter to the European Union came as a surprise given the “constructive tone” of recent talks between the bloc and the United States, Sven Jari Stehn, an economist at Goldman Sachs, wrote in a note. It has “reignited concerns around the euro area outlook,” he added.
But, in a reflection of the relatively muted market response, many analysts said they expected that tariffs would ultimately settle at lower levels. Mr. Stehn said he maintained his expectation that tariffs would be 10 percent on most goods, but 25 percent on some critical sectors including steel, autos and pharmaceuticals.
“By now, investors know the drill: A lot will change between today and 1 August, and the numbers thrown around at the moment are so high that they are ridiculous,” analysts at the investment bank Panmure Liberum noted. The European Union, however, still faced “many obstacles” to complete a trade deal with the United States before the higher tariffs were set to kick in, the analysts added.
The FTSE 100 index in London rose 0.4 percent. The analysts at Panmure Liberum said Britain had become a “trade war winner” as its agreement with the United States — a 10 percent tariffs on most goods, and zero tariffs on a quota of car and steel imports — could create an opportunity for European businesses to make and ship goods via Britain.
An index of the dollar against other major currencies was flat on Monday. The euro was trading at nearly $1.17. This month, the euro hit its highest level in nearly four years. The 10-year yield on U.S. Treasuries was little changed, at 4.4 percent.
“Markets are clearly not pricing in these higher tariffs,” analysts at Deutsche Bank said in a research note. “We may only know the outcome in the final hours, offering the potential for a sharp market reaction and heightened volatility.”
U.S. markets are also looking ahead to earnings season, in which big companies open their books for investors. JPMorgan Chase, Citigroup and Wells Fargo are set to report their latest quarterly earnings on Tuesday, which investors will parse for clues on the state of the economy. The effect of tariffs will be the “major unknown” in the upcoming batch of earnings, analysts at Raymond James noted, as the impact is more likely to appear in later quarters, after companies run through their inventories.
Inflation data for June is also due on Tuesday, and investors will look for signs of tariff-induced price increases there, too. Energy prices have climbed in recent days, as Mr. Trump was expected to announce a new arms-supply deal for Ukraine and momentum has grown for tougher U.S. sanctions against Russia, targeting its extensive oil and gas sales.
Investors are also on edge about accusations by Mr. Trump and his allies that Jerome H. Powell, the Federal Reserve chair, mismanaged renovations at the central bank’s headquarters. The line of attack, after Mr. Trump has berated Mr. Powell for not cutting interest rates more aggressively, has raised alarm that the White House is trying to lay the groundwork to fire the Fed chair for cause.
Eshe Nelson is a Times reporter based in London, covering economics and business news.
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