European markets were poised to rally this week after the United States and European Union struck a last-minute trade agreement that averted a broader tariff war and offered short-term relief for investors on July 27.

The deal, finalized just ahead of the Aug. 1 deadline, imposes a 15 per cent U.S. tariff on most EU exports — down from the 30 per cent originally threatened. Key European sectors, including automakers and luxury goods, are expected to benefit, while certain goods such as aircraft parts, agricultural items, pharmaceuticals and semiconductors are exempt.

European firms like Stellantis, BMW, and Volkswagen are forecast to gain, alongside luxury giants like LVMH and Kering. However, tariffs on steel and aluminum remain in place, with officials suggesting a quota system may follow.

In exchange, the EU has pledged to invest US$600 billion into the U.S. economy and purchase US$750 billion in American energy over the next three years. The agreement also includes commitments to additional defence procurement from U.S. firms.

The euro edged up following news of the deal, trading around US$1.1766, and analysts said the announcement removed a major source of uncertainty for European equities.

But while markets reacted positively, some observers warned the deal lacked long-term clarity. Critics in France and Germany have called the agreement one-sided, arguing it reflects an imbalance in trade power between the two sides. French Prime Minister François Bayrou called it a “dark day” for Europe.

Political analysts and economists described the deal as a “least-bad” option rather than a win. Wealth management firms such as UBS and Franklin Templeton said it may fuel a relief rally but cautioned that without clear enforcement mechanisms, investor confidence could fade quickly.

“People want to bet that the US will strike a series of deals. They’re not necessarily good deals, but uncertainty is worse. After we move up a little tomorrow in Europe, markets’ attention will turn to Canada and Mexico. Any positive sign that they can strike deals like today’s will be good enough for risk on.” stated Kallum Pickering, chief economist at Peel Hunt.

Meanwhile, U.S. markets also responded positively, with energy and defence firms standing to benefit from the EU’s massive purchasing commitments.