European Markets Rebound After Positive US-China Trade Call

Markets Rebound as Trump Postpones Tariff Threat Following Von Der Leyen Call

European financial markets surged on Monday, May 26, after US President Donald Trump announced a delay in the implementation of the previously threatened 50% tariffs on European Union imports. The move followed a phone conversation with European Commission President Ursula von der Leyen, who later described the call as “good” in a post on social media platform X. Trump’s sudden reversal helped reverse sharp losses from Friday, when markets sold off amid rising trade tensions.

The euro rose to its highest level since April 30 against the US dollar, driven by renewed investor optimism and short-covering activity. European equity futures also indicated a positive open, with relief sweeping across the continent’s trading desks. However, the sharp swing in market sentiment from Friday to Monday has exposed the fragility and volatility underpinning investor confidence in an increasingly unpredictable geopolitical environment.

Highlights:

• Trump delays EU tariff threat after weekend call with von der Leyen.

• Euro climbs to one-month high versus dollar amid easing trade risks.

• Market rebound follows Friday’s sell-off sparked by Trump’s abrupt tariff threat.

Volatile Policy Signals Undermine Long-Term Investor Confidence

Despite the short-term rally in equities and currencies, many institutional investors remain cautious, citing the increasingly erratic nature of US trade policy under President Trump. The weekend’s abrupt reversal is not being interpreted as a sign of stability but rather as a reminder of the impulsive decision-making that has come to define transatlantic economic relations in recent months.

Trump had initially set a 90-day negotiation window on April 2, set to expire on July 9, during which reciprocal tariffs were to remain capped at 10%. However, Friday’s threat of a 50% tariff — followed by Sunday’s deferral — demonstrates the limited predictability of this timeline. Market watchers noted that such unpredictability is discouraging long-term allocation to US assets and prompting a realignment of capital flows in favor of more stable jurisdictions.

Highlights:

• Investors wary of policy unpredictability despite short-term market gains.

• July 9 remains the revised deadline for US-EU trade negotiations.

• US-EU trade volatility seen as structurally undermining market sentiment.

ECB Officials Warned of Market Fragility Prior to Tariff Escalation

Hours before Trump’s renewed tariff threats, European Central Bank (ECB) Governing Council member Joachim Nagel had warned that the global financial system was already nearing a point of instability due to rising trade tensions. Speaking on behalf of Germany’s Bundesbank, Nagel stated that markets had approached a “nuclear meltdown” following Trump’s initial tariff threats in early April. While those warnings may have briefly pressured the White House into extending negotiations, the weekend’s drama has revived concerns over systemic risk.

Germany, the EU’s largest economy and its biggest exporter to the United States, remains particularly exposed to disruptions in transatlantic trade. Key sectors such as automobiles, machinery, and chemicals rely heavily on access to the US market. A sudden implementation of a 50% tariff would severely dent German export performance, with ripple effects likely to hit manufacturing data and GDP growth.

Highlights:

• ECB’s Joachim Nagel warned of market meltdown after April tariff shock.

• Germany remains most vulnerable to a transatlantic trade breakdown.

• Trump’s tariff volatility reignites systemic risk concerns in EU policymaking circles.

Capital Flows Reflect Strategic Realignment Away From US Assets

Amid the ongoing uncertainty surrounding US policy, capital flows into European equities have outpaced US inflows by a significant margin in 2025. According to Morningstar data, exchange-traded funds (ETFs) with European equity exposure attracted €34 billion ($38.6 billion) in inflows through May 16, compared to just €8.2 billion into US equity ETFs during the same period. This marks a sharp reversal from 2024, when US equity products received more than eight times the investment flows directed into Europe-focused funds.

The shift signals a growing investor preference for diversification away from US-centric risk, particularly in light of Trump’s aggressive stance on trade and regulation. Analysts suggest that this trend could continue if geopolitical tensions remain unresolved or if US macroeconomic indicators weaken further in response to heightened tariffs.

Highlights:

• European equity ETFs attract €34 billion in YTD inflows, quadrupling US ETF flows.

• 2024 trend reversed as investors retreat from US exposure.

• Strategic reallocation reflects unease over US trade unpredictability.

Muted Trading Expected Amid Holidays in Key Markets

Trading volumes in European markets are expected to remain light on Monday due to market holidays in both the United States and the United Kingdom. With Wall Street closed for Memorial Day and London shut for the Spring Bank Holiday, liquidity is likely to be thinner than usual, amplifying price swings and limiting institutional participation during early European sessions.

Despite the quieter trading environment, market focus remains fixed on key economic events later in the week. Notably, the US Federal Reserve’s preferred inflation gauge — the Personal Consumption Expenditures (PCE) price index for April — is set for release on May 30. The reading will be closely scrutinized for signs of inflationary impact from tariffs and for indications of future monetary policy adjustments.

Highlights:

• US and UK market holidays expected to dampen trading volumes.

• Reduced liquidity could heighten intraday volatility in European equities.

• Investors eye May 30 US PCE inflation data for tariff impact signals.

Upcoming Eurozone Inflation Data in Focus Amid Trade Risks

Economic data from the eurozone will be under the microscope this week as France and Germany prepare to release their respective consumer price index (CPI) readings. French CPI is due Tuesday, while German figures will follow on Friday. These will precede bloc-wide inflation statistics due the following week and are expected to provide crucial insight into the health of the European economy amid global trade turbulence.

Thus far, April’s consumer and producer price data in both the US and EU have not indicated a dramatic inflationary trend, but any acceleration in price growth could complicate the monetary policy outlook for both the European Central Bank and the US Federal Reserve. With markets still digesting the recent volatility from Trump’s trade rhetoric, economic fundamentals may play a larger role in determining asset allocation over the coming weeks.

Highlights:

• France CPI due Tuesday; Germany CPI expected Friday.

• Eurozone inflation data key to ECB’s upcoming policy considerations.

• Inflation stability remains critical amid external tariff pressures.