Asian markets have rallied overnight, after the announcement of a trade deal between the US and Japan. The deal sees a 15% tariff imposed on all Japanese exports to the US. Traders reacted positively to the news, because President Trump had previously been threatening a 25% tariff. Stock prices in Tokyo surged, with the Topix index hitting an all-time high, up 3% overnight.
Other Asian markets reacted positively, with the Shanghai index currently up almost 0.5% and Taiwan 1.5%. Japanese automobile manufacturers saw some of the best gains of the session. Toyota Motor saw its stock recover most of the losses seen since Trump’s original tariff threats, with a rise of almost 15%, whilst Mazda Motor Corp surged nearly 20%.
Japanese PM Shigeru Ishiba had previously said that tariffs would never be accepted, so the deal agreed overnight marks a major capitulation. Inevitably, Japanese car manufacturers will see their competitive position weakened by the imposition of these tariffs. Investors will now be waiting to see how much of the tariff is passed onto the US consumer and how much is absorbed into profit margins or deflected into price rises elsewhere in the world. PM Ishiba is expected to resign in the next few weeks after suffering successive electoral defeats in recent months.
Japan’s submission extended to making further specific concessions to the US, including an agreement to import more US rice and to spend hundreds of billions of dollars on buying Boeing passenger jets. Bond markets took the news badly, with Japanese 10-year government bond yields rising almost 0.1% to 1.6% – that represents their highest level since 2008, reflecting fears that the tariff deal would prove inflationary and trigger higher interest rates in the Asian nation.
JD Wetherspoon’s trading update, out this morning, shows sales growth holding steady at 5.1% for the last 12 weeks. This is despite tough comparative weeks a year ago when the men’s Euros soccer tournament was in flow. Wetherspoons say recent weather has helped push sales forward and allowed them to absorb the extra tax costs the government has heaped upon the hospitality sector. Chairman Sir Tim Martin highlighted that sales are now running ahead of the pre-pandemic level. Investors were hoping for more though, and the shares dropped almost 4% at the market open to trade around 751p.
Oil markets are little moved this morning, with Brent Crude futures trading around $68.5 in directionless trading. Sterling is holding on to its gains made since Donald Trump moved into the White House, trading around $1.353 this morning. It’s a different story against the euro though, where the pound is close to 12-month lows at €1.153.
Comment provided by Steve Clayton, Head of Equity Funds at Hargreaves Lansdown
