Analysis of Global Stock Market Reactions Before and After the US-UK Trade Agreement

The global financial markets reacted immediately as the United States and the United Kingdom reached a trade agreement. On May 8, President Donald Trump officially announced the trade deal with the UK, which led to a general easing of uncertainty and a broadly positive market response. This report provides a comprehensive analysis of major stock index changes and sector returns before and after the agreement.

Background and Key Details of the Trade Agreement

On May 8, 2025, President Donald Trump announced a "comprehensive" trade agreement with the UK. This marks the first trade deal reached by the Trump administration since the announcement of reciprocal tariffs, highlighting its significance. In his announcement from the Oval Office, President Trump said, "It is an honor to have the UK as the first country for this announcement, thanks to our long history and alliance".

 

Key terms of the agreement include:

• The US will lower tariffs on UK-made automobiles from 25% to 10%.
• Tariffs on UK steel and aluminum products will be completely eliminated.
• The agreement also includes strengthened cooperation in the aerospace and pharmaceutical sectors.
• According to the White House, the deal is projected to generate $6 billion in revenue for the US and create $5 billion in new export opportunities.
• For the UK, this is the second major trade agreement signed this week, following a deal with India. The agreement particularly targets industries most affected in both countries, such as automotive and steel.

Market Conditions and Uncertainty Before the Trade Agreement

Market Decline and Instability Before the Announcement

Prior to the trade agreement, US stock markets declined due to uncertainty surrounding the negotiations. On May 6, the Dow Jones Industrial Average closed down 0.95% at 40,829.00, while the S&P 500 and Nasdaq indices fell 0.77% and 0.87%, respectively. Market experts noted, "Uncertainty over trade negotiations is dominating the market," with the China factor being a key risk. Although there was some expectation for an agreement, the lack of concrete progress led to disappointment.

 

IPO Market Contraction

Trade uncertainty also negatively impacted the IPO market. According to Bloomberg on March 12, 2025, increased volatility and falling major indices in the US stock market dealt a significant blow to IPO activity. The CBOE Volatility Index (VIX) hit a yearly high of 29.57, posing risks for IPOs. Ongoing tariff wars, uneven economic indicators, and rising recession risks were cited as main causes for the IPO slowdown.

Global Stock Market Reactions Immediately After the Trade Agreement

US Stock Market: Broad-Based Gains

On May 8, US stock markets rallied strongly on news of the US-UK trade agreement:

• Dow Jones Industrial Average: +0.62% to close at 41,368.45
• S&P 500: +0.58% to 5,663.94
• Nasdaq: +1.07% to 17,928.14

The agreement, the first since the US’s tariff war escalation, and anticipation of upcoming US-China trade talks, boosted indices. Deutsche Bank commented, "This agreement is likely to serve as a framework for future deals," and strategists noted growing optimism for further agreements before the July 8 tariff suspension deadline.

 

UK Stock Market: Mixed Reactions Between Large and Mid-Caps

The UK market showed a more complex reaction after the announcement:

• FTSE 100 (large caps): -0.33%
• FTSE 250 (mid caps): +0.5%

The FTSE 100, comprised mainly of internationally focused large caps, dipped slightly, while the more domestically oriented FTSE 250 rose. The Bank of England’s rate cut from 4.5% to 4.25% also influenced the market.

 

Currency Market Response

The US-UK trade deal also affected currency markets:

• The pound initially rose up to 0.5% on reports of a possible deal, but gains moderated as details emerged.
• After the announcement, GBP/USD traded around 1.3275.
• Both the US dollar and the British pound strengthened on the back of the trade agreement.

Sectoral Performance Analysis

Different sectors showed distinct responses following the trade agreement:

 

Beneficiary Sectors

• Aerospace: Rolls-Royce shares gained 4.5% in the FTSE 100 after the US Commerce Secretary stated that tariffs would not apply to Rolls-Royce engines and aircraft parts. Industrial stocks rose 1.34% as the US also signaled purchases of British Boeing aircraft.
• Technology & AI: Tech stocks broadly rallied. Alphabet (Google) rose 2%, Meta 0.2%, Apple 0.63%, and Tesla surged 3%. Chipmakers like Nvidia (+1.5%), Broadcom (+1.6%), and AMD (+1.4%) also advanced, buoyed by expectations of eased export restrictions on AI semiconductors.
• Automotive: The reduction of US tariffs on UK car exports is a direct boon for manufacturers like Jaguar Land Rover, previously burdened by 25% tariffs.

Negatively Impacted Sectors

• Pharmaceuticals: Major UK pharma companies AstraZeneca and GSK fell 3% and 1% respectively in the FTSE 100, possibly linked to upcoming US executive orders on drug pricing.

Other Sector Responses

• Cryptocurrencies: Bitcoin rose 5% to over $101,000, and Ethereum surged 18% to above $2,100, as trade war tensions eased.
• Oil: WTI crude rose 3.17%, Brent crude 2.99%, on hopes for improved US-China trade relations.
• Gold: Gold futures dropped 2.84% to $3,296, with expectations that smoother US-China talks would reduce safe-haven demand.

Outlook and Investment Implications

Potential Expansion to US-China Trade Talks

The US-UK agreement signals the US’s willingness to pursue further trade deals. President Trump stated that other major trade agreements are in deep negotiation and may soon follow. Particular attention is on upcoming US-China talks, though Trump has insisted he will not lower the current 145% tariff rate before negotiations.

 

Expert Opinions

Scott Welch, CIO at Certuity, said, "The market responded positively to the UK announcement today." Deutsche Bank sees this deal as a potential template for future trade negotiations.

 

Key Takeaways for Investors

• Sector Strategy: Focus on direct beneficiaries such as aerospace, steel, and automotive companies, which stand to gain most from tariff relief.
• Reduced Uncertainty: Progress in trade talks is expected to reduce market uncertainty and improve overall investor sentiment.
• Supply Chain Realignment: Broader trade agreements could accelerate global supply chain restructuring, benefiting logistics and transportation firms.
• IPO Market Revival: Eased trade uncertainty could revive the recently subdued IPO market, especially in tech, finance, and healthcare sectors.

Conclusion

The US-UK trade agreement has had a positive impact on global financial markets. The removal of uncertainty led to a broad rally in US stocks, with aerospace and technology sectors particularly strong. In the UK, large caps and mid-caps diverged, but overall, progress in trade negotiations sent a positive signal to markets. This agreement provides important clues about the future direction of US tariff policy and is likely to influence negotiations with other countries. Investors should closely analyze sectoral impacts and monitor the potential expansion of trade agreements when developing their strategies.