European stocks rose for a second day on Tuesday as markets reacted positively to the suggestion of a US-UK trade deal and the possibility of tariff relief for the automotive sector.
The Stoxx Europe 600 index and Morningstar Europe Index were up around 1% by Wall Street open at 330pm CET. Amid remarks from President Donald Trump that his administration was “looking at something to help some of the car companies,” shares in Volkswagen VOW were up around 3% and Stellantis STLAM nearly 7%.
In the UK, the FTSE 100 index was nearly 1% higher, led by miner Fresnillo FRES, private equity giant 3i III, and home improvement retailer Kingfisher KGF. Suggestions from vice president J D Vance of a US-UK trade deal helped sentiment.
The biggest FTSE 100 fallers were Diageo DGE, Scottish Mortgage Investment Trust SMT, and AstraZeneca AZN.
On the FTSE 250, the biggest faller was Burberry BRBY, which fell 3.26% as investors reacted negatively to unexpectedly poor results posted by French luxury giant LVMH MC, which fell 8% on a Q1 sales miss.
Over in the US, the S&P 500 and Nasdaq composite indexes opened modestly higher.
The yield on the 10-year US Treasury bond was 4.37%, from 4.42% on Monday. The 10-year German bund, the benchmark security in the eurozone, was yielding 2.53%, an increase of two basis points from Monday.
Will The Positive Market Momentum Last?
President Donald Trump told reporters on Monday night that his administration was “looking at something to help some of the car companies, where they’re switching to parts that were made in Canada, Mexico and other places.
“And they need a little bit of time, because they’re going to make them here.”
The remarks are the latest sector-focused statement from Trump, whose comments on the widespread use of tariffs to shield the US economy from overseas imports have sent stock markets into correction mode over the past two weeks.
“There will certainly be more twists and turns in the tariff story unfolds,” says Michael Field, chief European market strategist at Morningstar.
“LVMH’s earnings are the only bad news today, but otherwise Trump’s comments on making things a bit easier for automakers, and generally being flexible, is fuel to the fire for the positive momentum.
“That said, issues between the US and China are not yet resolved, so Europe is simply on hold for now. It is possible we will see a further escalation in the trade dispute at some point.”
Why is Trump Putting Tariffs on Auto Manufacturers?
On April 2, Donald Trump confirmed his administration would implement a 25% worldwide import tariff on all automobiles and automobile parts imported into the US. The only exceptions would come as a result of the US Mexico-Canada Agreement, or USMCA.
According to Morningstar equity analyst Rella Suskin, this will affect European auto manufacturers negatively, though how much is yet to be determined.
“Despite the downward revisions under this scenario, we continue to believe that there is a sufficient margin of safety at current prices, as shares trade at a significant discount to our valuations,” she says.
“BMW BMW and Mercedes MBG export approximately 50% of their US production, which may be affected by retaliatory tariffs, possibly increasing the negative impact on our fair values.
“Meanwhile, Ferrari RACE and Porsche PAH3 are the most exposed. However, their superior pricing power and the positive effect that price increases have on the residual values of their customers’ existing cars reduce the overall impact of tariffs on their financials. This applies more so to wide-moat Ferrari than narrow-moat Porsche.”
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
