FTSE and European Markets Close Higher While US Stocks Slip Amid Tariff Jitters

By: Swarnalata

Published on: May 21, 2025

Introduction

Equity markets in Europe rebounded on Tuesday, as investors digested a new “Brexit reset” agreement between the United Kingdom and the European Union, while U.S. shares gave up early gains amid lingering concerns over President Trump’s trade policies. In London, the FTSE 100 closed at a two-month high, reflecting strength in key domestic sectors. Meanwhile, the broader STOXX 600 index across Europe rose for a second consecutive session. By contrast, Wall Street indices ended lower, snapping a six-day winning streak for the S&P 500 amid uncertainty over the future trajectory of U.S. tariffs and Federal Reserve policy .

European Markets Rally

On the continent, the pan-European STOXX 600 climbed 0.4% to its highest level in seven weeks, driven by gains in utilities and telecommunications stocks. Germany’s DAX hit a fresh record high as energy and industrial names outperformed, while Spain’s IBEX traded at levels last seen in 2008. Sector-wise, utilities led the advance with a 1.5% rise—EDP Renováveis jumped 3.5% following an upgrade by Deutsche Bank—and offshore wind names Ørsted and Vestas Wind rallied 13.3% and 4% respectively after U.S. regulators lifted a suspension on a New York wind project. Positive sentiment was underpinned by stabilizing credit conditions after Moody’s downgraded U.S. debt and by anticipation of further commentary on U.S. tariff plans .

FTSE 100 Performance

London’s benchmark FTSE 100 index enjoyed a 0.94% gain, closing at 8,781.12 GBP—its strongest finish since early March. Mid-cap stocks also fared well, with the FTSE 250 rising 0.7% to a three-month high. Companies reporting upbeat earnings led the charge: Diploma surged 18% as it raised its full-year organic revenue forecast, and Smiths Group climbed 4.7% on strong sales guidance. The broader rally was supported by easing Brexit-related trade frictions following the UK-EU “reset,” which has alleviated some supply-chain concerns for food exporters and industrial firms .

US Stocks Retreat

Across the Atlantic, U.S. equity benchmarks reversed course, with the S&P 500 slipping 0.4%, the Dow Jones Industrial Average falling 114.83 points (0.3%), and the Nasdaq Composite retreating 0.4%. Major technology names underperformed: Alphabet and Amazon each lost over 1%, while Apple and Nvidia eased by about 0.9%. Tesla bucked the trend, climbing 0.5% after CEO Elon Musk pledged to curtail political spending and reaffirmed his leadership role for the next five years. The pullback ended a six-session winning streak for the S&P 500 and reflected caution ahead of fresh trade developments and key economic data .

Tariff Concerns and Fed Outlook

Despite a brief pause in the U.S.-China tariff war under a 90-day truce, headline tariff rates remain elevated, and investors fret that any rollback could be slow to materialize. Federal Reserve officials from multiple regions have signaled that interest-rate cuts are unlikely until at least September, as trade-related uncertainty clouds the global outlook. This dovetails with comments from JPMorgan CEO Jamie Dimon, who warned that market optimism around a swift resolution to trade disputes might be overdone. High tariffs, combined with persistent geopolitical risks, have prompted some bond yields to edge higher, adding pressure on equity valuations .

Brexit Reset Deal Details

In London, Prime Minister Keir Starmer hailed a “reset” in relations with Brussels following a summit at Lancaster House. Key provisions include a youth mobility scheme for people aged 18–30, allowing limited-term work, study, or travel on both sides, though exact quotas remain under negotiation . The accord also promises reduced border red tape for food and drink exports—potentially reversing the one-third slump in UK agrifood shipments since Brexit—and the use of faster e-gates for UK travellers at EU airports to ease immigration friction . A new defence and security partnership will permit British arms firms to bid for contracts under the EU’s €150 billion security fund, marking a notable expansion of post-Brexit cooperation.

Implications for Investors

The combined impact of the Brexit reset and corporate earnings strength provides a tailwind for UK and European equities in the near term. Reduced administrative barriers in food trade should benefit agribusinesses and logistics providers, while improved mobility arrangements may bolster tourism and service sectors. Conversely, U.S. investors remain wary of Fed rate-cut delays and the prospect of retaliatory measures if tariff talks falter. Currency markets have reflected these dynamics: the pound has firmed modestly against the dollar, while safe-haven flows into U.S. Treasuries have tempered yield spikes. Asset allocators may look to re-weight their Europe-exposure, given the region’s relative undervaluation and clearer policy outlook.

Conclusion

Tuesday’s market action underscores the bifurcation between Europe, which is benefiting from diplomatic breakthroughs and strong corporate news, and the United States, where trade policy uncertainty is keeping valuations in check. As the second half of the year unfolds, investors will closely monitor the implementation of the Brexit reset measures, progress in U.S. tariff negotiations, and Federal Reserve communications. Near-term catalysts include upcoming inflation readings in the U.K., June’s ECB meeting, and any announcements on the U.S. trade front. For now, market participants can take comfort in Europe’s regained footing, even as global risks persist.