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Plenty of ink has been spilled over Brexit’s impact on FTSE 100 shares. Leaving the EU produced many challenges, but one of the touted benefits was the tantalising prospect of a trade deal with the US — Britain’s largest single trading partner.
Well, here it is! On Thursday (8 May), President Trump and Prime Minister Starmer were full of mutual praise as they announced the fruits of years of negotiation. The agreed economic deal was hailed as “full and comprehensive” by the White House, and a “win for both countries” by Downing Street.
So, could this be a fabulous opportunity for FTSE 100 investors? Or is the devil in the details?
One step forward, two steps back?
In theory, FTSE 100 stocks have much to gain from a UK-US trade deal. The American market’s responsible for around 30% of Footsie companies’ revenues. That’s considerably greater than any other global region, and more than domestic sales, too.
But London’s leading benchmark barely budged on the news. It seems traders weren’t convinced about the deal’s limited scope. Its terms won’t affect most British imports and exports. The US 10% baseline tariff imposed on the UK remains in place.
There’s a legitimate concern that the bilateral trading environment for many FTSE 100 firms is still more challenging than before Trump’s ‘Liberation Day’ levies, despite this agreement.
However, concessions secured on agriculture, cars, and steel could be a boon for companies in these sectors. Pharmaceuticals were also earmarked for preferential treatment
This might help firms like AstraZeneca and GSK, which have US revenue exposure over 40% and 52% respectively. But caution’s advisable. There’s still a lack of clarity about future tariffs on biotech companies.
Positive foundations
Crucially, this doesn’t mark the end of discussions. Negotiations to build on the framework are ongoing. A potential UK-US technology partnership could be a big prize.
Diplomatic context also matters. Sir Keir Starmer’s adopted a more conciliatory tone with his unpredictable American counterpart than other global leaders, such as the new Canadian PM Mark Carney and several EU heads of state.
If Britain’s spared from the worst of any future tariffs following the deal, FTSE 100 stocks could reap the rewards.
Finding FTSE 100 winners
Although the agreement may not be a game-changer for the index as a whole, certain FTSE 100 companies could be major beneficiaries. One to consider is iconic aerospace and defence business Rolls-Royce (LSE:RR.).
Civil aviation’s the lifeblood of the business, accounting for a majority of Rolls-Royce’s revenues. US Commerce Secretary Howard Lutnick specifically named the firm on Thursday, announcing that its engines used on Boeing 787 passenger jets would receive a tariff exemption.
With 29% revenue exposure to the US, this could be a big boost for a company already celebrating impressive recent results. Rolls-Royce’s return on capital has skyrocketed to 13.8%, compared to 4.9% in 2022. The deal’s positive impact should aid efforts to lift this figure to 18%-21% by 2028.
Valuation’s a concern with Rolls-Royce shares. They trade at a forward price-to-earnings (P/E) ratio of around 33.8. That’s much higher than the FTSE 100 average. Nonetheless, although this might not be a cheap stock, it’s primed to benefit from the new UK-US trade deal.
