Stocks ride Japan's trade deal with the US, from Europe to Asia

Share prices for European stocks on Wednesday jumped on prospects of a trade agreement between the European Union and the US, as Japan struck a deal with Washington to reduce tariffs on its autos.

This also drove shares in Japan to a one-year high as investors cheered the news, especially automakers in that country. The agreement followed another deal with the Philippines that demands a 19% tariff rate on imports from that country.

Prospects of more tariff negotiations ignite optimism and stock surge

This comes as US President Donald Trump announced a trade deal with Japan on Tuesday that includes paying a lower than 15% tariff on exports to the US.

“I just signed the largest trade deal in history, I think maybe the largest deal in history with Japan,” President Trump said at a White House event.

According to a Reuters report, President Trump indicated that EU nations will turn up for more tariff negotiations this Wednesday, which ignited hope within the bloc, although the region was reportedly already working on countermeasures. These were to be implemented in the event of a stalemate before the originally set August deadline.

In response to the news, the Euro STOXX 600 rose by 1% as auto shares jumped 3.6%. Shares in UK hit a record high after climbing 0.5%.

Deutsche Bank analysts acknowledged the renewed hope among investors, explaining that the news of the trade deal “raised hopes that the US might be about to reach deals with other countries that avoid the higher tariffs on August 1.”

Elsewhere on Wall Street, the S&P 500 futures advanced 0.2%, while Nasdaq futures added 0.1%. In Japan, the Nikkei jumped 3.7%, spurred by news of the trade deal that will reduce US auto tariffs to 15% from the initially proposed 25%. Strong gains by companies in the motor industry, including Nissan, Toyota and Honda led the rally.

Mazda Motor surged by 18% while peers, Toyota, rose by 14%. However, the dollar remained sluggish after it lost ground overnight as it traded flat at 146.71 yen after falling 0.5% on Tuesday.

The dollar index, which tracks the currency against major peers, slightly changed at 97.48. Elsewhere, the euro fell 0.1% after it rose 0.5% the previous day as the European Central Bank is expected to hold rates steady on Thursday after eight consecutive rate cuts.

The US – Japan deal comes as a relief to the Asian giant’s economy

Analysts are of the view that the trade deal was an added advantage to Japan as it reduced a major risk to its economy, while providing more scope for the Bank of Japan to raise interest rates to tame inflation. About 25% of Japan’s US exports are from its automotive sector, which accounts for almost 3% of its economy.

According to a Reuters report, that hit the bond market, with yields for 10-year JGBs rising 8.5 basis points to 1.585%. Meanwhile, Japanese Prime Minister Shigeru Ishiba denied reports that he was planning to step down after a terrible upper house election defeat, arguing the reports were “completely unfounded.”

Elsewhere, US and Chinese officials are expected to have another meeting next week in Stockholm as they deliberate on a possible extension to the August 12 deadline for negotiating a trade deal, according Treasury Secretary Scott Bessent.

As a result, Chinese blue chips jumped 0.7% before slowing down, and MSCI’s broadest index Asia-Pacific shares outside Japan put on 1.2%.

In the US, corporate earnings reports showed signs that the trade war was hitting profit margins. General Motors fell 8.1% after reporting a $1 billion hit from tariffs to its quarterly results.

Still within the auto industry, investors are looking forward to earnings results from Tesla, while others are eagerly awaiting for Alphabet’s results.

The two companies, together with Apple, Meta Platforms, Amazon, Microsoft, and Nvidia make up the Magnificent 7 stocks. These have spurred much of the market rally driven by AI optimism.

Cryptopolitan Academy: Tired of market swings? Learn how DeFi can help you build steady passive income. Register Now