Stock Markets Slip as Trade Deal Optimism Fades and Fed Meeting Looms

Stock markets stumbled on Tuesday, reversing earlier gains driven by recent U.S. trade deals, as investor attention shifted to upcoming economic data, corporate earnings, and the Federal Reserve’s next policy direction.

While Sunday’s trade agreement between President Donald Trump and the European Union initially lifted market sentiment—especially after a similar pact with Japan the previous week—analysts are urging caution.

Although the EU deal managed to avert an outright tariff war, Trump’s decision to impose a 15% blanket levy on European and Japanese imports, while exempting American goods, is raising fresh concerns among investors and industries alike.

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The new tariffs, though seen as a diplomatic step forward compared to escalating tensions, still represent a significant hike in trade barriers. Auto manufacturers, in particular, have expressed deep unease, as the new tariffs could severely impact supply chains and export competitiveness.

Stephen Innes, managing partner at SPI Asset Management, noted that the move may have temporarily pulled markets back from the edge, but warned of lingering risks. “The 15% blanket levy on EU and Japanese imports may have helped markets sidestep a cliff, but it’s no free pass,” he said.

“With the average effective U.S. tariff rate now sitting at 18.2%, the barrier to global trade remains significant. The higher tail risk didn’t detonate, but its potential impact on the global economy hasn’t disappeared either.”

Echoing that sentiment, Ray Attrill, head of FX strategy at National Australia Bank, pointed out that markets are beginning to reassess the situation. “It hasn’t taken long for markets to conclude that this relatively good news is still, in absolute terms, bad news—especially regarding near-term prospects for eurozone growth through 2025,” he said.

With the Federal Reserve’s next policy meeting on the horizon and key U.S. economic indicators expected in the coming days, investors are bracing for more volatility. The short-lived optimism over trade de-escalation has given way to a more sobering outlook, underscoring the fragile state of global economic recovery.

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