Stocks power ahead as US, Japan strike trade deal: Markets Wrap

by Margaryta Kirakosian and Julien Ponthus

The record-breaking run in global stocks got fresh fuel after the US reached a trade deal with Japan, easing concern about the tariff war as traders turn their attention to earnings from US tech giants.

Futures on the S&P 500 rose 0.3% after the index closed at a new high on Tuesday. Europe’s Stoxx 600 gauge jumped 1%, as shares of automakers surged on hopes the European Union will manage to negotiate its own accord with the US. Japan’s Topix Index rallied as much as 3.6%, while Toyota Motor Corp. shares climbed the most since 1987.

Global stocks have roared back from their April slump on expectations countries will strike agreements with the US ahead of an Aug. 1 deadline, avoiding significant damage to company earnings and the global economy. Among the companies reporting Wednesday are Tesla Inc. and Alphabet Inc.

“The current environment is rather risk-on,” said Christophe Boucher, chief investment officer at ABN Amro IS. The tech earnings “could provide further support moving forward or on the contrary, put the market on pause,” he said. 

Big tech’s strength is on full display as the group begins unveiling quarterly earnings. A gauge of the so-called “Magnificent Seven” giants halted a nine-day advance Tuesday. 

The group is 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.

Trade Clarity

After months of uncertainty, Trump’s latest tariff deals are providing clarity on the broad contours of a 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.

The US also reached an agreement with the Philippines, setting a 19% tariff on the country’s exports. Shares in Manila rose 1%.

“What really matters to Washington now is getting headline deals that allow both sides to claim they’ve scored a win in trade talks, but get us away from the potentially severe economic consequences of an all-out trade war,” said Phillip Wool, head of portfolio management at Rayliant Global Advisors Ltd.

Meanwhile, the Japanese yen fluctuated after Prime Minister Shigeru Ishiba said there was no truth in media reports that he will resign. 

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. 

Corporate News:

• ASM International NV shares fell after its second-quarter orders missed expectations, after some chipmakers’ struggles undermined demand for the Dutch company’s semiconductor equipment.
• UniCredit SpA dropped its bid for rival Banco BPM SpA, ending an eight-month standoff with its rival and the Italian government over the plan to create the country’s largest lender.
• Morgan Stanley is being probed by the Financial Industry Regulatory Authority over its vetting of clients for the risk of money laundering, the Wall Street Journal reported.
• Microsoft Corp. warned that Chinese state-sponsored hackers are among those exploiting flaws in its SharePoint software to break into institutions globally, with the US agency responsible for designing nuclear weapons now among those breached.

What Bloomberg’s Strategists say...

“Japan’s trade deal gives hope for the European Union, which is in the final stages of negotiating its own accord with the US before punitive levies of 30% kick in next week. That can only be good news for German stocks in general and its carmakers in particular.”

—Ven Ram, macro strategist.

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 0.9% as of 8:35 a.m. London time
• S&P 500 futures rose 0.2%
• Nasdaq 100 futures were little changed
• Futures on the Dow Jones Industrial Average rose 0.3%
• The MSCI Asia Pacific Index rose 1.9%
• The MSCI Emerging Markets Index rose 1.1%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.1744
• The Japanese yen was little changed at 146.70 per dollar
• The offshore yuan rose 0.1% to 7.1615 per dollar
• The British pound was little changed at $1.3546

Cryptocurrencies

• Bitcoin fell 1% to $118,603.37
• Ether fell 0.4% to $3,694.08

Bonds

• The yield on 10-year Treasuries advanced three basis points to 4.38%
• Germany’s 10-year yield advanced three basis points to 2.61%
• Britain’s 10-year yield advanced four basis points to 4.61%

Commodities

• Brent crude rose 0.2% to $68.73 a barrel
• Spot gold fell 0.1% to $3,426.44 an ounce

This story was produced with the assistance of Bloomberg Automation.

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