Stocks Rise Worldwide After US-Japan Trade Agreement
Global Markets Rally on Trade Deal Optimism
Investor confidence in the global financial markets surged on Wednesday, driven by renewed optimism surrounding potential trade agreements involving the United States. A key catalyst was Japan’s recent agreement to lower U.S. tariffs on its automotive exports, which sent Japanese stocks to a one-year high and lifted broader market indices.
President Donald Trump announced that a trade deal with Japan would involve a reduced tariff rate of 15% for auto imports into the U.S., significantly below the previously threatened 25%. This development followed an earlier agreement with the Philippines, which will see the U.S. impose a 19% tariff on goods from the country. These developments have sparked hope that other nations may also reach favorable trade terms before the August 1 deadline.
The positive sentiment extended to European markets as well. The Euro STOXX 600 index rose 0.9%, with auto sector shares climbing 3.4%. In the UK, the stock market hit a record high, gaining 0.5% on the day. Analysts at Deutsche Bank noted that these trade deals could reduce the risk of higher tariffs, potentially easing pressure on global economies.
Wall Street also showed signs of optimism, with S&P 500 futures rising 0.4% and Nasdaq futures adding 0.2%. The positive mood was further fueled by the news that EU representatives were scheduled to meet with U.S. officials for trade negotiations on Wednesday. Despite this, reports suggested that the EU is preparing countermeasures in case talks fail before the August 1 deadline.
Japanese Market Soars on Tariff Reduction
Japan's Nikkei index surged 3.7% following the announcement of the U.S.-Japan trade deal, which would cut the U.S. auto tariff to 15% from the proposed 25%. Major automakers saw significant gains, with Mazda Motor jumping 18% and Toyota Motor rising 14%. South Korean automakers also benefited from the news, as investors grew optimistic about potential progress in their own tariff negotiations with the U.S.
The dollar remained weak against major currencies, losing ground against the Japanese yen. The currency fell 0.3% to 146.25 yen after dropping 0.5% the previous day. The dollar index, which tracks the U.S. dollar against a basket of major currencies, remained largely unchanged at 97.48.
Analysts highlighted that the trade deal alleviated a major risk to Japan’s fragile economy, potentially allowing the Bank of Japan more room to raise interest rates to combat inflation. This led to a rise in bond yields, with 10-year Japanese government bonds (JGBs) increasing by 8.5 basis points to 1.585%.
Political Stability and Extended Deadlines
Amid the economic optimism, the yen stabilized after Japan's Prime Minister Shigeru Ishiba denied rumors that he planned to step down following a recent upper house election defeat. He called media reports of his resignation “completely unfounded,” helping to ease market concerns.
In another positive development, U.S. and Chinese officials are set to meet in Stockholm next week to discuss extending the August 12 deadline for negotiating a trade deal. Treasury Secretary Scott Bessent confirmed the meeting, signaling continued diplomatic efforts between the two nations.
While Chinese blue-chip stocks ended the day flat, MSCI's broadest index of Asia-Pacific shares outside Japan gained 1.5%. However, corporate earnings reports revealed that the impact of Trump’s trade policies is beginning to affect profit margins. General Motors dropped 8.1% after reporting a $1 billion loss due to tariffs in its quarterly results.
Market Watch and Energy Prices
Investors are now closely watching upcoming earnings reports from major tech companies, including Tesla and Google’s parent company Alphabet. These firms, part of the so-called Magnificent 7, have been instrumental in driving the recent market rally fueled by AI-related optimism.
In other markets, 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 when it meets on Thursday, following eight consecutive rate cuts.
Oil prices continued to decline for the fourth consecutive session, with U.S. crude falling 0.7% to $64.48 per barrel and Brent crude dropping the same amount to $68.11 per barrel.