European Stocks Rally as Hopes for EU-U.S. Trade Deal Rise

European shares climbed on Wednesday, buoyed by renewed optimism for a potential trade deal between the U.S. and the European Union (EU) following U.S. President Donald Trump’s recent trade agreement with Japan. The broad rally was led by the automotive sector, which saw significant gains in light of favorable trade talks and reduced tariffs.

At 0715 GMT, the pan-European STOXX 600 index was up nearly 1%, trading at 549.6 points, reversing the downward trend of the past three days. Britain’s blue-chip FTSE 100 index also continued its positive run, hitting a record high for the fifth consecutive session.

Strong Gains in the Automobile Sector

Automobile stocks were the standout performers on Wednesday, with the sector rising by 3.4%. This surge mirrored the strength in Asian automobile stocks, driven by expectations of eased tariff pressures. Major companies like Porsche and Mercedes-Benz saw notable gains, with their shares rising by 7.6% and 5.8%, respectively.

The market’s enthusiasm followed Trump’s announcement of a trade deal with Japan that aims to reduce auto tariffs between the two nations. As part of the agreement, Japan will benefit from a reduction in U.S. tariffs on auto exports, from 25% to 15%. In return, Japan has committed to a $550 billion investment and loan package directed towards the U.S.

EU-U.S. Trade Deal Hopes

Adding to the optimism, Trump indicated on Tuesday that EU representatives would arrive for trade negotiations on Wednesday, improving the prospects of a similar deal between the U.S. and the EU. This further fueled investor sentiment that trade tensions could ease and that tariffs might not increase as initially feared.

Individual Stock Highlights

In individual stock performances, Swiss-based Lonza saw its shares rise 5.4% after exceeding core profit expectations, driven by the company’s drug manufacturing business. Meanwhile, ASM International pressured technology stocks after the company reported second-quarter bookings below market expectations, leading to a sharp 7.7% drop in its shares.

German software maker SAP also saw a 3.5% decline in its stock price. Despite posting a positive second-quarter profit, driven by cost cuts and increased demand, the company held off on revising its full-year outlook, leading to some disappointment among investors.

The positive movement in European stocks was largely driven by optimism over trade talks, particularly between the U.S. and Japan, which provided a glimmer of hope for a broader U.S.-EU trade agreement. This optimism, coupled with strong performances in the automobile sector and positive earnings reports, helped lift investor sentiment across European markets on Wednesday. However, concerns over disappointing results from technology companies like SAP and ASM International served as a reminder of the mixed economic outlook. As negotiations continue, European markets will be closely watching for any developments in trade talks that could impact future growth prospects.