FTSE 100: Contrarian Opportunities in Energy and Trade-Exposed Sectors Amid U.S. Tariff Delays

The recent delay of U.S. tariffs on European Union (EU) and U.K. imports until August 1, 2025, has injected a dose of relief into markets long bracing for a trade war. For investors, this pause offers a window to reassess the FTSE 100's near-term outlook—and identify contrarian opportunities in energy and trade-exposed sectors. While near-term volatility remains a risk, the deferral of tariffs, coupled with improving trade sentiment, could catalyze a revaluation of oil majors like Shell and BP, along with European exporters, as markets reassess risk premiums and sector-specific catalysts.

The Tariff Delay: A Breathing Spell for Trade-Exposed Sectors

The postponement of tariffs—from July 9 to August 1—has temporarily eased pressure on sectors such as automotive, steel, and aluminum. The U.S. had threatened rates as high as 200% on certain EU goods (e.g., alcohol) and 25% on UK steel and aluminum. While these tariffs loom, their delayed implementation reduces immediate cash-flow risks for companies reliant on transatlantic trade.

The UK's auto industry, for instance, benefits from a tariff-rate quota allowing imports of U.K.-origin vehicles at 7.5% instead of 25%, per the U.S.-UK Economic Prosperity Deal. Meanwhile, the aerospace exception for U.K. manufacturers under the WTO Agreement on Trade in Civil Aircraft shields companies like Rolls-Royce from Section 232 tariffs. These carve-outs highlight how select sectors may thrive despite broader trade tensions.

Energy Majors: A Revaluation Catalyst in Disguise

The FTSE 100's energy sector, which accounts for roughly 25% of its weighting, is a prime contrarian play. Companies such as Shell (SHEL) and BP (BP) have been weighed down by concerns over global demand, inflation, and supply-chain disruptions. However, three underappreciated bullish catalysts are now coming into focus:

1. Deferred Inflation Risks:
   Recent data suggest inflationary pressures are easing, particularly in energy-intensive sectors. This reduces the risk of further interest rate hikes, which had been a headwind for equity valuations.

2. Stable Demand Dynamics:
   The delay in tariffs reduces the risk of a synchronized global growth slowdown, which would otherwise pressure oil demand. The FTSE 100's energy stocks, with their diversified global operations, are well-positioned to benefit from stable or rising crude prices.

3. Sectoral Rebound in Trade-Exposed Regions:
   European exporters, including energy firms, could see a rebound in cross-border activity as the U.S. and EU continue talks to resolve trade disputes. A resolution could unlock pent-up demand for European energy infrastructure and renewables projects.

Shell's 12-month performance, which has lagged the broader index, suggests a potential valuation gap to close as macro risks recede.

Trade-Exposed Sectors: Betting on a “Soft Landing”

The FTSE 100's trade-exposed sectors—automotive, industrials, and materials—are pricing in worst-case tariff scenarios. Yet several factors suggest a “soft landing” is plausible:

• Diplomatic Leverage: The U.S. and EU have a shared interest in avoiding a prolonged trade war, given their intertwined supply chains. The U.S. delay until August reflects this pragmatism.
• Geopolitical Diversification: The FTSE 100's energy and materials firms derive over 75% of revenues outside the UK. This geographic diversification insulates them from localized tariff shocks.

Take Anglo American (AAL), a FTSE 100 constituent: its exposure to commodities like platinum and copper positions it to benefit from global infrastructure spending, while its African and South American operations shield it from U.S.-EU trade headwinds.

The Contrarian Play: Buy the Dip, Focus on Dividends

Investors should approach the FTSE 100 with a contrarian lens, targeting sectors that have been oversold on tariff fears but are fundamentally robust:

1. Energy Majors:
   Shell and BP offer dividend yields of ~5.5% and ~6%, respectively. Their cash flows are stable, and the delay in tariffs reduces immediate operational risks.

2. Trade-Exposed Exporters with Defensive Qualities:
   Companies like Unilever (ULVR), which generates 80% of revenue outside the UK, and Vodafone (VOD), a Telecom leader with a 4.5% dividend yield, offer defensive exposure to trade volatility.

3. Select Industrial Plays:
   Rolls-Royce (RR) and JCB (JCB) benefit from the UK's aerospace exception and demand for industrial equipment in infrastructure-heavy economies like the U.S. and EU.

Risks and Mitigation

The primary risk remains a renewed escalation of tariffs post-August. Investors should pair sector-specific exposure with hedging strategies:
- Use stop-losses at 15% below entry prices for volatile stocks.
- Allocate a portion of portfolios to tariff-insulated sectors like utilities (e.g., National Grid, NG) and ETFs tracking global commodities (e.g., XLE for energy).

Conclusion: A Revaluation Cycle is Brewing

The FTSE 100's energy and trade-exposed sectors are priced for pessimism. With tariffs delayed, inflation risks deferred, and diplomatic channels open, the stage is set for a revaluation cycle. For contrarians, now is the time to position for a rebound in oil majors and exporters—provided they remain disciplined in risk management. The next few months will test investor patience, but those who buy the dip in sectors like energy may find themselves on the right side of this trade.

The FTSE 100's current P/E multiple of 19.5x—below the S&P 500's 24x—suggests ample room for valuation expansion as macro risks retreat.