European stocks recover after Trump delays EU tariffs in hopes of deal

European shares kicked off the week on a positive note on Monday, recouping the previous session’s losses, as markets heaved a sigh of relief after U.S. President Donald Trump delayed his threat to impose a 50% tariff on the region.

The pan-European STOXX 600 index closed 1% higher. It had lost 0.9% on Friday after Trump unexpectedly called for sharp tariffs on goods from the European Union, saying that negotiations with the region were not moving fast enough.

On Sunday, Trump extended the deadline for tariffs to July 9 from June 1, after European Commission President Ursula von der Leyen said the 27-nation bloc needed more time to produce a deal.

The automobiles and parts index, sensitive to tariff-related pressures, led broader gains with a 1.8% rise. However, they were limited by a 3.3% decline in Porsche.

Defence companies were among the biggest boosts to the STOXX 600 index, with Rheinmetall and Leonardo gaining over 3% each and the aerospace and defence index advancing 1.7%.

The stocks also pulled up the industrial goods and services sector by 1.5%.

The defence and auto sectors helped German stocks rise by 1.7%, near a record high.

Luxury stocks, highly exposed to the U.S. market, also gained. Shares of Kering, LVMH and Richemont rose about 1% each, as did the broader index

“While more time for EU-U.S. negotiations is good news, the speed of the rebound in stocks suggests that investors may have become too optimistic on the path for trade discussions,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

The euro jumped along with other risk-sensitive currencies, while euro zone government bond yields were little changed, as Trump backtracked from his tariff threats.

Rising concerns about the U.S. economic slowdown and fiscal woes, underscored by Moody’s credit rating downgrade on May 16, are pushing investors to limit their exposure to U.S. assets.

“If you want to have a low-risk portfolio, the U.S. is where you would go first, but with the trade tensions and geopolitical tensions, this favourable sentiment has shifted,” said Ipek Ozkardeskaya, a senior market analyst at Swissquote Bank.

Trading volumes were lighter than usual due to public holidays in the U.S. and the UK markets. However, U.S. stock futures were up more than 1% each.

Thyssenkrupp jumped 8.8% after a weekend report said the submarine and car parts maker plans to hold a shareholder meeting on August 8 to approve an expected spin-off of its warship division. Thyssenkrupp was not immediately available for comment.

Zealand Pharma topped the STOXX 600 with a 10% advance.

U.S. President Donald Trump’s decision to drop his threat to impose 50% tariffs on European Union imports from next month gave ‘new impetus’ to trade talks, the EU said on Monday, as global stock markets climbed and the euro rallied.

Back-tracking on the new tariffs he announced on Friday, Trump on Sunday restored a July 9 deadline to allow for talks between Washington and the 27-nation bloc to produce a deal after what he said was “a very nice call” with EU Commission chief Ursula von der Leyen.

The pan-European stocks index recovered to where it was trading before Friday’s surprise tariff announcement and the euro rose to its highest since late April. Gold prices fell as Trump’s latest move reduced demand for the safe-haven asset.

“They agreed both to fast track the trade negotiations and to stay in close contact,” a European Commission spokesperson said of Trump and von der Leyen’s conversation.

US and EU trade representatives were due to hold talks later on Monday.

“There’s now also a new impetus for the negotiations, and we will take it from there,” the spokesperson said.

The U.S. president’s about-turn reminded policymakers and investors how quickly his trade policy could change, however, and it was unclear how the EU would square its push for a mutually beneficial trade deal with U.S. calls for steep concessions.

Commerzbank currency strategist Michael Pfister said the European Union could reach a deal with the U.S. by July 9 but that Friday’s announcement made clear the respite was temporary.

“It is questionable what has changed in terms of the fundamental problems following a phone call,” he said.