Global Markets React to US Trade Tariff Developments

European equity markets have surged 7% in 2025, driven by investor rotation from US markets due to political and valuation concerns. However, analysts warn that this rally may be ignoring the risks associated with escalating global trade tariffs. The US GDP growth forecast has been revised down to 1.4% due to the trade war, and European markets are expected to be impacted soon. Companies are absorbing increased tariff costs, leading to a potential profit margin squeeze, but markets are pricing in unaffected global growth and central bank easing. Bank of America's Sebastian Raedler predicts an 11% decline in the Stoxx Europe 600 index, while JPMorgan expects a consolidation. Barclays is more optimistic, forecasting a 5% rise, but TD Cowen analysts warn that the impact of tariffs could be significant, citing the example of Adidas's potential earnings downgrade due to increased tariffs on Vietnamese goods.

Asia-Pacific markets traded mixed on Friday as investors awaited details on U.S. trade deals ahead of a deadline for higher tariffs. Japan's Nikkei 225 declined 0.13%, while South Korea's Kospi index fell 1.41%. Mainland China's CSI 300 index rose 0.41%, and Hong Kong's Hang Seng Index dropped 0.62%. Australia's S&P/ASX 200 was flat, and India's Nifty 50 started the day flat. The mixed trade came after a strong U.S. jobs report pushed the S&P 500 and Nasdaq Composite to record highs on Thursday.

European markets are expected to start the day negatively, following a strong Thursday close driven by a better-than-expected US jobs report. German factory orders slumped 1.4% month-on-month in May, worse than the 0.1% decline forecast. Air France-KLM is taking a majority stake in SAS, increasing its holdings to 60.5%. Meanwhile, US President Donald Trump's tariff negotiations with key trading partners, including the EU, are ongoing, with a July 9 deadline looming and potential tariffs of 10% on exports to the US.

Societe Generale analysts say de-dollarisation is underway, favouring Asian assets despite a record US stock rally. They attribute this trend to diminishing US exceptionalism, potential softening of US growth, and a decline in crude oil prices. The US dollar index has dropped 11% in the first six months, with Asian currencies such as the Taiwan dollar, yen, and won appreciating against it. The MSCI Asia-Pacific Index has risen 12% this year, almost doubling the gain in the S&P 500.

President Trump announced that the US has reached a trade deal with Vietnam, with the US imposing 20% tariffs on Vietnamese goods and 40% on "transshipping," while Vietnam will allow US products to be sold at zero tariffs; the deal has not been confirmed by Vietnam and details remain unclear, ahead of a July 9 deadline for foreign countries to reach trade deals with the US.

The US and Vietnam have agreed on a trade agreement with the US imposing a 20% tariff on Vietnamese goods, lower than the previously considered 46%. The deal includes a clause imposing a 40% tariff on goods deemed to be transshipped, which refers to exporters evading tariffs by routing them via a third country. Analysts warn this provision could have significant regional consequences, potentially affecting not just Vietnam but the wider Asia region.