European stocks poised to surge as US-Japan trade deal struck

Japanese shares surged to a one-year high on Wednesday as the country struck a trade deal with the United States that lowers tariffs on its autos, while also reviving hopes for a EU-US agreement that boosted European stock futures.

US president Donald Trump on Tuesday said a trade deal with Tokyo will include Japan paying a lower-than-threatened 15 per cent tariff on shipments to the US It followed an agreement with the Philippines that will see the US collect a 19 per cent tariff rate on imports from there.

Mr Trump also said representatives from the European Union were coming for trade negotiations on Wednesday. That stirred hopes for a deal with Europe, even as the EU was reportedly refining countermeasures in case of a deadlock before the August 1 deadline.

Stoxx 50 futures jumped 1.3 per cent, while Germany’s DAX futures climbed 0.6 per cent.

“Expectations for a breakthrough (on the US-Japan talks) were low, so Trump’s announcement delivers a mild upside surprise – providing near-term relief for Japanese equities,” said Charu Chanana, chief investment strategist at Saxo.

“Strategically, the deal allows Japan to sidestep immediate tariff escalation, while Trump’s attention shifts elsewhere.”

Japan’s Nikkei bolted 3.7 per cent higher as shares of automakers surged on news the deal would cut the US auto tariff to 15 per cent, from a proposed 25 per cent. Mazda Motor rallied 17 per cent, while Toyota Motor jumped 13.6 per cent.

South Korean automakers also rallied as the Japan deal fuelled optimism over potential progress in tariff negotiations between South Korea and the United States.

Analysts noted the trade deal reduced a big risk to the fragile Japanese economy, providing more scope for the Bank of Japan to raise interest rates to fight inflation.

That slugged the bond market, with yields for 10-year JGBs rising a whopping 8.5 basis point to 1.585 per cent.

In another positive development, US and Chinese officials will meet in Stockholm next week to discuss an extension to the August 12th deadline for negotiating a trade deal, US treasury secretary Scott Bessent said.

Chinese blue-chips rose 0.7 per cent and Hong Kong’s Hang Seng index gained 0.8 per cent. MSCI’s broadest index of Asia-Pacific shares outside Japan added 1.0 per cent.

Wall Street was more restrained with S&P 500 futures up 0.2 per cent, while Nasdaq futures added 0.1 per cent.

US corporate earnings reports were showing signs that Mr Trump’s trade war was hitting profit margins. General Motors tumbled 8.1 per cent after the automaker reported a $1 billion hit from tariffs to its quarterly results.

Investors are now awaiting results from Tesla and Google’s parent Alphabet – two of the Magnificent 7 stocks that have driven much of the market rally fuelled by AI optimism.

In the foreign exchange market, the dollar consolidated having slipped overnight in line with Treasury yields. The dollar index was a shade firmer at 97.45, after losing 0.4 per cent on Tuesday in its third session of declines.

The euro dipped 0.1 per cent to $1.1737, after rising 0.5 per cent the previous day. The European Central Bank is expected to hold rates steady on Thursday after eight consecutive rate cuts, with the prospect of steeper-than-expected US tariffs looming. – Reuters