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investing.com - The European Union’s trade deal with the U.S. lifts a shroud of uncertainty away from the bloc, and should not impede an ongoing economic recovery in the region, according to analysts at BCA Research.
Washington and Brussels reached a landmark trade agreement last month that includes a 15% tariff on EU goods entering the U.S. The tariff applies to a wide range of items, including semiconductors and pharmaceuticals.
However, there are some exceptions, such as a 50% levy on steel and aluminum that will remain in place.
The broad-strokes deal encompasses significant EU purchases of U.S. energy and military gear, along with substantial investments in the American economy.
U.S. President Donald Trump said the EU also committed to purchasing $750 billion worth of energy from the United States and agreed to make $600 billion in investments in the U.S.
Despite receiving stark criticism over a perceived capitulation to Trump, European Commission President Ursula von der Leyen managed to secure the "best deal possible" given the EU’s constraints, the BCA analysts said.
"For all the ink spilled about how bad the U.S.-EU trade deal is, the reality is that, tariff-wise, it does not make a significant difference compared to what the EU has been dealing with for most of the second quarter," they wrote. As of August 1, the effect tariff rate for EU exports to the U.S. stood at 12.2%, or 1.4 points above its level in June, the BCA analysts said.
In a note, the strategists led by Jeremie Peloso said that for "[g]ood or bad, the U.S.-EU trade deal means that trade uncertainty is abating," adding that "on the margin, this is positive for European exporters."
Meanwhile, the tariffs, at their current level, are unlikely to stop what has become a "nascent economic" rebound in the Eurozone currency area, which includes many members of the European Union, the analysts argued.
"Fiscal and monetary policy are supportive, inflation continues decelerating, and forward-looking economic indicators are improving," they wrote.
Against this backdrop, they recommended that investors should be "overweight European equities relative to fixed income, focusing on parts of the equity market insulated from tariffs." At the sector level, they backed long positions on financials and utilities and short ones on health care and staples -- flagging that about 47% and 33% of revenues for the largest health care and staples companies originate from the U.S.