European and Japanese Stocks Soar on U.S.-Japan Trade Deal
Global Markets React to Trade Deal Optimism
European shares experienced a notable rise on Wednesday, driven by optimism surrounding potential trade agreements between the European Union and the United States. This sentiment was further bolstered by Japan's recent deal that lowered tariffs on its automotive exports, which pushed Japanese stocks to a one-year high.
President Donald Trump announced that a trade agreement with Japan would involve the country paying a reduced tariff of 15% on shipments to the U.S., compared to the previously threatened rate. This development followed an agreement with the Philippines, where the U.S. will impose a 19% tariff on imports from there. Trump also mentioned that EU representatives were scheduled for trade negotiations on Wednesday, sparking hopes for a similar deal with Europe. However, the EU was reportedly preparing countermeasures in case of a deadlock before the August 1 deadline.
The Euro STOXX 600 index surged by 1%, with auto sector shares rising 3.6%. The UK market also reached a record high, increasing by 0.5%. Analysts at Deutsche Bank noted that the trade deal news has raised expectations that the U.S. might soon reach agreements with other countries to avoid higher tariffs after August 1.
On Wall Street, S&P 500 futures gained 0.2%, while Nasdaq futures added 0.1%. In Japan, the Nikkei index climbed 3.7%, with automaker shares benefiting from the news that the U.S. auto tariff would be cut to 15% from a proposed 25%. Mazda Motor saw a significant increase of 18%, and Toyota Motor jumped 14%. South Korean automakers also experienced gains as the Japan deal fueled optimism about potential progress in tariff negotiations between South Korea and the U.S.
The dollar remained weak, having lost ground overnight. It traded flat at 146.71 yen after dropping 0.5% on Tuesday. The dollar index, which tracks the currency against major peers, was little changed at 97.48.
Analysts highlighted that the trade deal reduced a major risk to the fragile Japanese economy, providing more room for the Bank of Japan to raise interest rates to combat inflation. This development affected the bond market, with yields for 10-year JGBs rising 8.5 basis points to 1.585%.
Japan's Prime Minister Shigeru Ishiba denied reports suggesting he planned to step down following a challenging upper house election defeat. He stated that media reports claiming he had already decided to resign were "completely unfounded."
Extended Deadlines and Market Developments
In another positive development, U.S. and Chinese officials are set to meet in Stockholm next week to discuss an extension to the August 12 deadline for negotiating a trade deal, according to Treasury Secretary Scott Bessent. Chinese blue-chips rose 0.7% before losing momentum, while MSCI's broadest index of Asia-Pacific shares outside Japan added 1.2%.
U.S. corporate earnings reports indicate that Trump's trade war is beginning to impact profit margins. General Motors fell 8.1% after the automaker reported a $1 billion hit from tariffs in its quarterly results. Investors are now waiting for results from Tesla and Google's parent company Alphabet—two of the Magnificent 7 stocks that have been key drivers of the market rally fueled by AI optimism.
Meanwhile, the euro dipped 0.1% to $1.1737, following a 0.5% gain the previous day. The European Central Bank is expected to maintain its current interest rates on Thursday after eight consecutive rate cuts.
Oil prices saw a slight increase, supported by rising diesel prices in the U.S., where stockpiles are at their lowest levels for this time of year since 1996. U.S. crude rose 0.3% to $65.48 per barrel, while Brent crude reached $68.77 per barrel, up 0.2%.