Financial market: CAC 40 ascends, yet escalation in tariff conflict surpasses predictions
The Paris Stock Exchange (CAC 40) experienced a significant rise on May 26, 2023, following a temporary trade truce announced between the United States and the European Union. The CAC 40 climbed 1.11%, reaching 7,820.75 points at 9:40 AM (Paris time), an increase of 86.35 points, as the threatened tariffs on EU goods by the U.S. were temporarily halted until July 9.
John Plassard, an investment specialist at Mirabaud, noted that markets were relieved by President Trump's decision to postpone the implementation of 50% tariffs on European products. Just days earlier, concerns had been rising when Trump had announced his intention to impose new import taxes on European goods from June 1, marking the end of a 90-day truce granted to discuss trade terms with partners.
Donald Trump reassured the public via his Truth Social network, mentioning that he and European Commission President Ursula von der Leyen had agreed to a fresh conversation and the deadline had been pushed back to July 9. A potential meeting aimed to find a solution was also discussed.
Despite the current respite, analysts such as Christopher Dembik from Pictet AM and independent analyst Andreas Lipkow warn that the prolonged trade dispute between the European Union and the U.S. may be more prolonged and tense than initially expected. This uncertainty is set to create complications for stocks over the following weeks.
Government bond yields, which had dropped earlier in the week due to a rush towards safe-haven assets, started to inch up. The yield on the 10-year French bond reached 3.27%, while the German equivalent, the benchmark in Europe, reached 2.59%.
As Wall Street remained closed for the Memorial Day holiday, the session seemed to be calm overall. Key gaining stocks included automakers heavily exporting to the U.S. market, such as France's Stellantis, up 2.29%; ArcelorMittal (+3.67% to €27.42); and Airbus (+2.36% to €161.02).
The aerospace sector, heavily dependent on transatlantic trade, also showed significant growth during the session. However, as the trade disputes continue and unpredictability persists, market volatility may impact investor confidence and stock prices. Sectors heavily influenced by tariffs, like automotive and aerospace, are particularly vulnerable to the prolonged trade war's effects on both economic growth and stock performance.
In attempting to mitigate these risks and find resolutions, investors might consider diversifying portfolios, while political engagement remains crucial for managing tensions and reaching mutually beneficial agreements.
- To mitigate the potential impacts of the prolonged trade dispute between the U.S. and the European Union on stock performance, investors might consider diversifying portfolios.
- Sectors heavily influenced by tariffs, such as automotive and aerospace, due to their dependence on transatlantic trade, are particularly vulnerable to the effects of a prolonged trade war on both economic growth and stock prices, making it crucial for analysts to keep a close eye on the stock-market label 'finance' and the investing sector.
