US agrees trade ‘deal’ with Japan
Japanese equity markets have advanced strongly overnight, up almost 4%, after Donald Trump announced that a trade ‘deal’ had been reached with Japan – “perhaps the largest deal ever made” – including a 15% tariff on exports to the US, lower than the 25% that was due to come into effect on August 1st. Japanese bond yields have spiked higher, by around 8bps in the case of 10-year yields, while the yen, though bouncing around against the dollar, is not much changed overall. Elsewhere in FX, the euro and sterling have both gained some more ground against the US currency, trading at about $1.1745 and $1.3545 respectively this morning, while EURGBP is at around £0.8670 having reached almost £0.87 during yesterday’s session.
The jump in Japanese bond yields is spilling over to other markets with US 10-year yields 3-4bps higher overnight, reversing a fall the occurred yesterday, and German and UK yields also nudging up at the start of play this morning. European equity markets have opened in positive territory (+1%) following the gains in Asia overnight, while the futures market points to a positive open for US stocks later today as well.
In addition to the deal with Japan, Trump has also announced trade agreements with the Philippines and Indonesia with both facing tariffs of 19% on their exports to the US. As in the case of Japan, this is ahead of the 10% tariff that was applied to most countries during the 90-day pause period following the announcement of ‘reciprocal’ tariffs on April 2nd (Liberation Day).
In relatively conciliatory remarks yesterday, US Treasury Secretary Bessent said “there’s nothing that tells me that (Fed Chair Powell) should step down right now,” adding that If he wants to see his term through to next May, then “I think he should.” More witheringly, Trump said Powell is doing a bad job but “he’s going to be gone pretty soon anyway,” as he again said interest rates should be 300bps lower than they are currently.
It’s another quiet day ahead in terms of economic data with just consumer confidence in the Euro area and existing home sales in the US.