Weekly Buzz: The art of the (trade) deal 🤝

The US just struck two major trade deals: one with Japan, another with the European Union – both with the same headline rate of 15% tariffs. That’s soothed market jitters for now, but peel back the layers and it's clear who walked away with the better bargain.

What’s going on?

Washington struck a deal with Japan this week, dialing back proposed tariffs on cars and industrial goods from 25% to 15%. In return, Japan committed to a hefty US$550 billion investment package to boost US manufacturing and supply chains.

Europe followed suit: facing the threat of 30% tariffs on nearly all exports to the US starting 1 August, the EU agreed to a 15% levy instead. That sounds reasonable – until you realise it's still triple the roughly 5% average tariff that European goods faced before. The deal also includes $750 billion in US energy commitments and $600 billion in additional US investments.

European markets barely flinched at the news. In fact, Europe's benchmark Stoxx Europe 600 index rose to its highest level in more than four months following the announcement. That's because investors were bracing for the higher 30% levy, making 15% feel generous by comparison. It's a classic case of anchoring – when the initial threat is severe enough, a "lesser" one feels like relief.

The longer-term cost will be harder to brush off, especially for the US. Tariffs will eventually filter into company earnings and consumer prices, which could see inflation rear its ugly head again.

What this means for you

Markets don’t just react to facts – sometimes they also react to how those facts are framed.  That’s why investing based on headlines is more dangerous than it seems: the goalposts shift fast, and market sentiment moves even faster.

Instead of trying to guess at trade policy, focus on what you can control: your long-term investing strategy. A portfolio that’s diversified across regions and asset classes means that you’re already positioned for whatever the next headline brings.

(For a portfolio that’s built for these global shifts, check out our General Investing.)

📰 In Other News: The European Central Bank hit pause on rates

The European Central Bank (ECB) held its key interest rate at 2%, calling timeout on a year-long cutting spree. It's the central bank's first hold in 2025 as inflation settles around the ECB's 2% target. While hitting your inflation target would be cause for celebration, the ECB is already watching for new risks.

Chief among those concerns: tariffs could dampen growth and distort price signals, making the ECB's job considerably more complex. While the newly inked 15% tariff on European goods is less than the previously threatened 30%, it still tightens the screws on Europe's already sluggish economy.

Europe is also significantly ramping up defence and infrastructure spending. While this provides support for growth, it risks reigniting inflation just as central bankers thought they had price stability secured.

The ECB left its growth forecast for 2025 unchanged at 0.9%. The backdrop leaves little margin for error, particularly if trade tensions flare up again or fiscal stimulus proves more inflationary than expected.

These articles were written in collaboration with Finimize.

🎓 Simply Finance: Anchoring bias

Anchoring bias is the tendency to latch on to the first piece of information and use it as a reference point for subsequent decisions. In investing, it can distort how we make decisions. An investor might view a company trading at $50 as "cheap" simply because it was $100 last year, ignoring current business conditions. It’s important to recognise when you might be anchoring to irrelevant information, and instead focus on current fundamentals and future prospects.