Tariff War Threat Recedes And European Auto Stocks Jump.
“We believe the key fact is no immediate E.U./U.S. tariffs are a good thing with the market pricing in 50-60% probability of trade-war in autos as of yesterday”
Most European auto stocks staged a powerful rally, after news the U.S. and the E.U. stepped back from the brink of a tariff war and declared they would seek to eliminate all tariffs, trade barriers and government subsidies.
The rally excluded Mercedes-Benz parent Daimler, which reported disappointing earnings Thursday, and its shares dived 2.4%.
Volkswagen led the way with a 3.5% gain, followed by BMW up 2.3%, according to Thomson Reuters data. Both companies were seen as having much to lose if the U.S. went ahead with threatened 25% auto tariffs. PSA Group of France doesn’t sell its vehicles in the U.S. but hopes to one day and its shares rose 2.2%. Fiat Chrysler Automobiles, with a foot in both Europe and the U.S., saw its shares accelerate 4%.
President Donald Trump and E.U. Commission President Jean-Claude Juncker said they would work towards zero tariffs on industrial goods excluding autos and WTO reform, but left the impression for the time being at least, that the threat to autos had abated.
Investment researcher Evercore ISI was relieved.
“We believe the key fact is no immediate E.U./U.S. tariffs are a good thing with the market pricing in 50-60% probability of trade-war in autos as of yesterday. The market should take the exclusion of auto in the first round of the deal making as the ransom/bargaining chip to make sure an overall zero tariff trade is being worked on,” Evercore ISI analyst Arndt Ellinghorst said.
There was no direct mention of the auto tariff imbalance with Europe which has irked the U.S. for years. There is a 2.5% tax if you sell European products in the U.S., but 10% if you sell U.S. products in Europe.
There had been much pessimism in Europe about the likelihood of a trade war which could have devastated its economy. Trump had threatened a tariff war if the U.S. didn’t get what he considered fair treatment.
This was misinterpreted as meaning Trump was not a fan of free trade, but he sounded convinced it was a good idea at the White House press conference Wednesday.