Market overview : "Between trade deals and strong earnings, markets breathe easier"
Traditionally a somewhat turbulent and risky period for investors, this summer has gotten off to a good start, with equity markets continuing their upward trend. This increase can be explained by greater visibility, driven by two major factors: trade agreements and corporate earnings.
Traditionally a somewhat turbulent and risky period for investors, this summer has gotten off to a good start, with equity markets continuing their upward trend. This increase can be explained by greater visibility, driven by two major factors: trade agreements and corporate earnings.
Trade Agreements: Progress with Reservations
On the tariff front, negotiations are ongoing. While the United States and China have given themselves three more months to reach a deal, several agreements have recently been announced. After the one signed with the United Kingdom in June, the United States signed agreements in July with Japan and the European Union (the latter still pending ratification by EU member states).
These agreements are far from perfect, as they generally increase tariffs, which is not good news for global growth. That said, their impact should remain manageable: the Kiel Institute, a renowned German economic research center, estimates that the introduction of 15% tariffs on certain European goods will cost around 0.13% of German GDP and just 0.01% of French GDP.
Moreover, these agreements help bring clarity after a long period of uncertainty. They also reduce tariff levels compared to worst-case scenarios: from 30% down to 15% for the EU, and from 25% to 15% for Japan. Finally, these deals have one common feature — they heavily favor the United States, since the EU and Japan will, among other things, be required to purchase American energy, weapons, and agricultural products, as well as make significant investments in the U.S.
Encouraging Corporate Earnings
As for companies, we are in the middle of the half-year earnings season, and results so far have been strong. Closer to home, we can highlight the solid earnings of Essilor Luxottica, Airbus, Société Générale, Hermès, Sanofi, Schneider Electric, Nexans, Legrand, Safran, and BNP, among others.
But even more significant on a global scale are the earnings of the major U.S. technology giants (“the Magnificent Seven”). Here too, results have been strong (with the exception of Tesla), supported by sustained demand for data centers and artificial intelligence. This was particularly the case for Alphabet (Google’s parent company), Microsoft, and Meta (owner of Facebook, Instagram, and WhatsApp).
Microsoft stock performance since 2018:
Monetary Policy Uncertainty in the U.S.
The only real shadow on the U.S. side comes from the Federal Reserve’s reluctance to lower interest rates, despite pressure and criticism from Donald Trump. Fed Chairman Jerome Powell remains cautious about inflation risks. And although growth is slowing across the Atlantic (the OECD projects 1.6% for this year), he nonetheless highlights the resilience of the U.S. economy. Indeed, indicators point to strong activity in services (which account for 70% of GDP), but weakness in manufacturing.
Looking ahead, the key question is the real impact of tariffs on U.S. inflation and, consequently, on consumer spending. That said, it is worth remembering that if growth were to slow more sharply, the world’s largest economy still has two powerful levers at its disposal: interest rate cuts, of course, but also the tax cuts promised by the president.