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Investing.com -- Easing tariff concerns could fuel a breakout in European equities after months of market stagnation, according to Barclays (LON:BARC) analysts.
“Reduced tariff tail risk could give legs to the relief rally in EU equities and pave the way to a breakout,” Barclays wrote in its latest equity market review.
Markets reacted positively after Japan struck a trade deal with the U.S. that included a 15% tariff on most imports, lower than expected.
Meanwhile, the Financial Times reported that the EU and the U.S. are nearing a similar agreement, which is well below the 30% level previously floated by the Trump administration.
“We think markets have good reasons to cheer the reduced tail risk, as the worst case scenario should be avoided,” Barclays said.
EU equities have gained 10% year to date but have traded sideways since April.
Barclays sees this week’s developments as a turning point: “The removal of the tariffs overhang [is] a precondition for our breakout scenario to materialize in H2, which now seems to be on the right track.”
Still, the economic impact of tariffs remains. A 15% rate, up from around 5%, “will have a negative impact on growth at some point,” Barclays warned.
However, “consensus EPS growth for 2025E in tariff-sensitive names has been revised sharply lower—now at -20%,” indicating that much of the pain is already priced in, added the bank.
While Barclays remains overweight domestic sectors like banks and telecoms, it is now re-engaging with export laggards.
“Bottoming-out in Chinese growth could also provide some additional support to EU exporters,” analysts noted, though they remain cautious on structurally challenged sectors like autos.