FTSE 100 Outlook: UK Stocks Set to Outperform Amid US-EU Tariff Tensions

UK stocks are expected to outperform Europe due to a deal with the US, reducing trade uncertainty. Strategists at Panmure Liberum predict a US recession in 2026 and inflation above 4%, but see an arbitrage opportunity for European companies to divert exports to the US via the UK. This is expected to result in increased investments in the UK over the next three-to-five years.

European stock markets experienced a midday rally on Wednesday, driven by optimism that the EU could secure a trade agreement with the US, potentially avoiding high tariffs. The FTSE 100 index in London rose 0.3%, while the FTSE 250 and Cboe UK 100 also saw gains. However, the AIM All-Share index was down 0.3% [1].

The EU aims to strike a deal with the US "in the coming days" to avoid sweeping tariffs, according to EU trade spokesman Olof Gill. The yield on the US 10-year Treasury eased to 4.41%, reflecting market sentiment [1].

UK stocks are expected to outperform Europe due to a potential trade deal with the US, reducing trade uncertainty. Strategists at Panmure Liberum predict a US recession in 2026 and inflation above 4%, but see an arbitrage opportunity for European companies to divert exports to the US via the UK. This is expected to result in increased investments in the UK over the next three-to-five years [2].

US Vice-President JD Vance stated there is a "good chance" of a trade deal with the UK, while UK Industry Minister Sarah Jones agreed but declined to provide a timeline. The US has begun national security investigations into the semiconductor and pharmaceutical trade, which could lead to tariff exemptions ending [2].

The pound rose to USD1.3586, while the euro fell to USD1.1704. Trade tariffs could increase the risk of businesses falling behind on loans, but the UK banking system is equipped to support households and businesses, according to the Bank of England [1].

References:
[1] https://www.morningstar.co.uk/uk/news/AN_1752059011908221900/london-market-midday-stocks-up-as-eu-hopes-for-us-trade-deal-soon.aspx
[2] https://www.bbc.co.uk/news/live/c175r8z8e1lt