US equity futures are higher again and trading in record territory following the US, Japan trade deal, which was largely unexpected (Polymarket odds of a deal before August 1 were just 20%), triggering a global risk-on rally. Japan will pay a 15% tariff (down from 25%) with the auto sector tariffs reduced to 15% (also from 25%). This may reduce pressure on the Aug 1 deadline. US / China mtg next week to work on a trade deal with either a deal or an extension most likely. In any case, the news was good enough to push the S&P up 0.3% to a new record high of 6374 although US futures are lagging global counterparts as Value leads; the Nasdaq trades 0.2% higher, also in record territory. Europe's Stoxx 600 jumped 1.2%, led by automakers on hopes the EU can secure its own agreement. Japan’s Topix soared as much as 3.6%, with Toyota posting its biggest daily gain since 1987. Pre-market, Mag7 names are all higher ahead of GOOG/TSLA earnings after the close. Cyclicals are unsurprisingly higher. Also, Meme stocks are ripping pre-mkt, adding 15% - 45% depending on the name. Bond yields are rising across the globe as growth expectations reset higher; JGBs are . USD is flat and commodities are mixed with Energy/Ags weaker and Metals rallying. Today’s macro data focus is on housing
In premarket trading, Mag7 are all higher (Nvidia +0.9%, Meta +0.3%, Microsoft +0.2%, Apple +0.1%, Alphabet +0.05%, Tesla +0.1%, Amazon +0.5%).
After months of uncertainty, Trump’s latest tariff deals have given some clarity on the new trade landscape. The agreement with Japan sets tariffs on the nation’s imports at 15%, including for autos — by far the biggest component of the trade deficit between the countries. Japan’s Topix Index closed up 3.2%, while Toyota Motor Corp. shares climbed the most since 1987.
Market sentiment was boosted overnight on hopes that the European Union will ink its own accord with the US. treasuries were poised to end a five-day winning run as demand for havens waned. The trade optimism contrasted with a batch of disappointing results from companies including Texas Instruments Inc., Nokia Oyj and SAP SE. The big tech names — Tesla Inc. and Alphabet Inc. — come after the close.
“The positive is that hopefully we’re coming to the end of all the tariff cloudiness in terms of what the ultimate rates will be so businesses can plan around them,” said Peter Boockvar at the Boock Report.
JPMorgan quantitative strategists warned of “a growing air of complacency” as the stocks rally coincides with an acceleration in earnings downgrades. “Either sell-side analysts are about to start a new round of upward revisions or the market is at risk of suffering a period of increased volatility and draw-downs,” the JPMorgan team led by Khuram Chaudhry said. “Something has to give!”
Turning back to earnings, where we see the first mega tech names report later today with GOOGL and TSLA, the “Magnificent Seven” are expected to post a combined 14% rise in second-quarter profits, while earnings for the rest of the US equity benchmark are predicted to be relatively flat, according to Bloomberg Intelligence data. Analysts will be studying the latest quarterly earnings from big tech for signs of resilience in a sector that has driven the rebound in US equities. Nasdaq 100 futures pointed to small gains at the open.
In Europe, the Stoxx 600 jumped 1.2%, led by automakers on hopes the EU can secure its own agreement. The tariff-sensitive auto sector outperforms, while utilities are the biggest laggards. In individual stocks, SAP falls as the software firm said that sales cycles are getting longer due to uncertainties around tariffs. Here are the most notable European movers:
Earlier in the session, a key gauge of Asian stocks rose by the most in a month, as a trade deal between the US and Japan raised optimism for more agreements ahead of Donald Trump’s Aug. 1 tariff deadline. The MSCI AC Asia Pacific Index climbed as much as 2%, reaching a four-year high, with Toyota and Tencent the biggest boosts. Japan led gains in the region, with the Topix gauge closing within a whisker of a record high, with Toyota posting its biggest daily gain since 1987. Stocks also climbed in Taiwan and Hong Kong, where a gauge of Chinese shares closed at its highest level since late 2021. Philippine equities rallied after an agreement was reached with the US that includes a slightly lower tariff of 19%. Thailand’s benchmark jumped as much as 2.6% after the nation’s finance minister said it’s close to a deal to lower a threatened 36% levy. The Hang Seng China Enterprises Index jumped 1.8% on Wednesday, topping a previous year-to-date high hit on March 18, after US Treasury Secretary Scott Bessent said he will meet counterparts from Beijing next week for a third round of talks aimed at extending a tariff truce. Here are the most notable movers:
In FX, the yen fluctuated after Japan’s Prime Minister Shigeru Ishiba said there was no truth in media reports that he will resign. The Bloomberg dollar spot index was flat. EUR and DKK were the weakest performers in the G-10 sphere, with NZD and AUD outperforming.
In rates, an auction of 40-year government notes in Japan saw the weakest demand ratio since 2011. The sale was a test of appetite for super-long debt following a historic election defeat for Ishiba when his ruling coalition failed to win a majority in the upper house at a vote on Sunday. The country’s 10-year government bond yield rose to the highest since 2008. The selloff spread to global bonds, with Treasuries, gilts and bunds falling across the curve, the most at the long end. UK 30-year bonds lagged peers, with the yield rising 6bps to 5.46%.
In commodities, Brent traded within Tuesday’s range at $68.40. Spot gold was little changed at $3,432/oz.
Looking at the US economic data calendar, we only have June existing home sales (10am). Fed officials are in external communications blackout ahead of their July 30 rate decision
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks were mostly higher as focus centred on the latest trade developments after US President Trump announced three trade deals in one day with the Philippines, Indonesia and Japan, with the latter involving a USD 550bln investment in the US and 15% tariffs for Japanese goods. ASX 200 gained with the advances led by strength in materials, miners, energy and resources, while defensives are at the other end of the spectrum. Nikkei 225 surged above 41,000 following the announcement of a US-Japan trade deal involving a 15% tariff on Japanese goods including autos and auto parts which is less than the previous threat of 25% tariffs and in turn, boosted automakers which dominated the list of biggest gainers with several up by double-digit percentages, while there were also tailwinds as the JPY slightly softened in the aftermath of a report that PM Ishiba is to announce his resignation by the end of August. Hang Seng and Shanghai Comp conformed to the mostly positive risk tone with US President Trump noting that there will probably be a meeting with Chinese President Xi in the not-too-distant future, while US Treasury Secretary Bessent said they will likely work out an extension regarding the August 12th deadline with China and he will attend talks next Monday and Tuesday with China in Stockholm.
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European bourses (STOXX 600 +1.2%) opened firmer across the board, and continued to trade higher throughout the morning - currently at session highs. European sectors hold a very strong positive bias, with only a couple of sectors residing in negative territory. Autos tops the pile and is currently the clear outperformer, largely benefiting from trade optimism after Japan finally struck a deal with US - optimism which stems from traders factoring in the potential benefits European automakers now have on pricing over Japanese autos. Consumer Products also benefit from the broader risk tone.
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DB's Jim Reid concludes the overnight wrap
As we go to press this morning, we’ve had some huge headlines out of Japan. First, they reached a trade deal with the US ahead of the August 1 tariff deadline, which has led to a surge in Japanese equities, with the Nikkei up +3.25%. Second, it’s been reported by the Yomiuri newspaper that Prime Minister Ishiba has decided to step down and might announce his resignation as soon as this month, which follows the upper house election at the weekend. And third, weak demand at a 40yr bond auction has seen a fresh move higher for Japanese government bond yields, with the 10yr yield up +7.3ps to 1.58%, which would almost be its highest closing level since 2008.
For global markets, the trade deal news has been the most significant, as it’s raised hopes that the US might be about to reach deals with other countries that avoid the higher tariffs on August 1. That deal with Japan includes a 15% tariff, beneath the 25% tariff that Trump threatened in his recent letter, and Bloomberg have also reported that Japan’s automobiles and parts would face the 15% tariff, and not the higher sectoral tariff for automobiles. In a post, Trump also said that “Japan will invest, at my direction, $550 Billion Dollars into the United States, which will receive 90% of the Profits.” However, the details of how that will work are not immediately clear.
The news of the deal has led to a big jump for Japanese equities, with the Nikkei (+3.25%) on course for its best daily performance since the 90-day tariff extension was announced in early April. And notably, it’s been auto companies that have led the way, with Toyota’s share price up +14.18% this morning as investors reacted to the news on the auto tariffs. Moreover, that optimism has carried over into other Asian markets outside Japan, with advances for the Hang Seng (+1.13%), the CSI 300 (+0.74%), the Shanghai Comp (+0.75%) and the KOSPI (+0.18%). And over in the United States, futures on the S&P 500 are up +0.19%, building on their record high in yesterday’s session.
Notably, one of the other strong performers this morning are European equity futures, with those on the German DAX up +0.93%. That’s because the Japan deal has significantly raised hopes that the EU might also be able to reach a trade deal, as they’ve been threatened with 30% tariffs on August 1. Indeed, Trump also announced a deal with the Philippines yesterday that would see them face a 19% tariff. And there were some positive remarks on trade from US Treasury Secretary Bessent as well yesterday, stating that he would meet his Chinese counterparts in Stockholm for further talks. As a reminder, the US and China agreed to dial back their tariffs for 90 days in May, with the US rate coming down from 145% to 30%, so that’s about to run out in mid-August. But Bessent struck a positive note, saying that “we’ll be working out what is likely an extension then.”
Collectively, this more positive trade news has really helped to ease investor fears that tariffs are about to snap back higher on August 1. But of course, the threat of much higher tariffs still remains for several large economies, including the 30% on the EU, 35% on Canada and 50% on Brazil. And there’s also the pledge of higher sectoral tariffs, including 50% on copper, so this is far from the end just yet, and those tariffs would each have a significant impact if they did come in. We also know from experience that we might not know the outcome until hours before the deadline, which happened in early February where the 25% tariffs on Canada and Mexico were postponed for 30-days on the day before they were due to be implemented.
Whilst Japanese equities have rallied overnight, it’s been a different story for the country’s bond markets, with the 10yr yield currently just shy of its highest closing level since 2008. That follows a 40yr bond auction, where the bonds yielded the highest on record at 3.375%, whilst the demand ratio was the weakest since 2011. So that’s seen the 10yr JGB yield rise +7.3bps to 1.58%, whilst the 40yr yield is up +9.0bps this morning to 3.45%. And that’s cascaded across global markets too, with the 10yr US Treasury yield also up +2.0bps overnight to 4.36%.
Those headlines overnight followed a comparatively quiet day for markets yesterday, where the S&P 500 (+0.06%) just about eked out another record high. Paradoxically given the overnight developments, there had been growing concerns about tariffs earlier in the session, with Bessent saying in an interview that “What I think will happen is that the tariff level will boomerang back to the reciprocal level on April 2nd.” So that had raised fears about a much higher tariff rate, before the news of the Japan deal saw that ease again. Indeed, the risk-off move yesterday saw gold prices (+1.01%) almost close at a record high, at $3,431/oz.
One factor ultimately supporting markets yesterday was the continued decline in Treasury yields, with the 10yr (-3.3bps) and the 30yr (-2.7bps) yields falling for a 5th consecutive day, down to 4.35% and 4.92% respectively. That came in part because of a belief that Fed Chair Powell’s position was relatively more secure, particularly after Bessent said there was “nothing that tells me that he should step down right now”. And while President Trump made some fresh criticisms of Powell, claiming that rates should be at 1%, there was no fresh urgency in his remarks, instead saying “he's going to be out pretty soon anyway. In eight months, he'll be out”. So from a market perspective, that continued to ease the fears from last week that Powell might be fired. That said, lower yields did continue to weigh on the dollar index, which fell -0.47% to mark its worst 3-day run (-1.36%) in two months.
Those tariff fears were evident earlier in the day, where European equities lost ground. The STOXX 600 was down -0.41%, and some of the more trade-exposed stocks did particularly badly, with the STOXX Automobiles and Parts Index down -1.26%. Those losses were echoed across most of Europe, with the CAC 40 (-0.69%) and the DAX (-1.09%) seeing decent falls. However, US stocks shrugged off those concerns, and the S&P 500 (+0.06%) pared back its earlier losses to ultimately close at a new high, whilst the equal-weighted index was up +1.29% as interest-rate sensitive sectors led the gains. By contrast, tech stocks lost ground before the start of the Mag-7 earnings today that sees Alphabet and Tesla reporting after the US close. The NASDAQ and Mag-7 fell by -0.39% and -0.48% respectively.
Meanwhile, European bonds experienced a further rally yesterday, with further gains after the very strong moves on Monday. That saw yields on 10yr bunds (-2.3bps), OATs (-3.0bps) and BTPs (-1.6bps) all move lower. And gilts (-3.3bps) saw a similar move, despite data showing that the UK government borrowed more than expected in June, at £20.7bn (vs. £17.5bn expected). The moves were also supported by lower inflation expectations in the near-term, particularly as Brent crude oil prices fell -0.90% to $68.59/bbl.
Elsewhere, there was very little data to speak of yesterday, although the Richmond Fed’s manufacturing index fell to an 11-month low of -20 (vs. -2 expected).
To the day ahead now, and data releases include US existing home sales for June, and the Euro Area’s preliminary consumer confidence reading for July. Otherwise, earnings releases include Alphabet and Tesla.