Stock markets rally after Japan-US trade deal

AFP | London

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Stock markets rose yesterday after Japan and the United States hammered out a trade deal to slash Donald Trump’s tariffs, including those on the crucial car sector.

Investors were also cheered by news that Washington had reached agreements with Indonesia and the Philippines, stoking optimism that more countries will follow suit before Trump’s August 1 deadline.

“News of a trade agreement between the US and Japan is fostering optimism among investors that further deals might be reached before punishing tariffs come into force,” said AJ Bell investment director Russ Mould.

Wall Street opened higher, with the S&P 500 rising off a record close to flirt with its alltime high.

In Europe, London’s FTSE 100 was up 0.4%, after hitting another record high at the open.

Paris piled on 1.2% and Frankfurt also advanced, tracking gains in Asia.

Tokyo surged over 3% after the US president announced a deal lowering tariffs on some Japanese goods to 15%, down from the threatened 25%.

The deal will also reduce tolls on autos -- a sector accounting for eight% of Japanese jobs -- to 15%, compared with 25% for other countries.

In return, Japan pledged to invest $550 billion in the United States, Trump said on social media.

Shares in carmaker Toyota rocketed higher by more than 14%, Mitsubishi 13% and Nissan 8%.

European carmakers also rallied, with Stellantis jumping more than six% in Paris.

Mercedes Benz, Porsche and Volkswagen all rose more than five%, while BMW climbed by more than 4%.

The deal is providing optimism that other countries can “seal good deals if they pledge investment into the US,” said Kathleen Brooks, research director at trading group XTB.

Trump also hailed an agreement with Manila to lower levies on Philippine goods by one%age point to 19%, while tariffs on Indonesia were slashed from 32% to 19%.

Shares in Manila and Jakarta rallied.

The announcements boosted hopes of other deals before next Friday’s deadline, though talks with the European Union and South Korea remain elusive.

The EU’s top trade negotiator will speak to US Commerce Secretary Howard Lutnick later on Wednesday, but the EU has retaliatory tariffs worth over $100 billion teed up no deal is reached and US tariffs go into force.

US Treasury Secretary Scott Bessent will meet his Chinese counterparts in Stockholm next week, as a separate mid-August deadline approaches for levies on Chinese goods to snap back to steeper levels.

Japan’s 10-year government bond yield soared to the highest since 2008 after media speculation that Prime Minister Shigeru Ishiba would resign after a weekend election debacle, which he denied.

Elsewhere in Asia, Hong Kong hit its highest level since late 2021, while Shanghai was flat.

Eyes are also on the release of earnings from Google parent Alphabet, Tesla and Intel, with looking at performance of AI investments. If Alphabet’s “AI investments pay off, then it may ignite another rally in tech stocks, especially those with AI exposure,” said Brooks.