Stocks Climb on Japan and EU Trade Deals
AMERICAN stocks rose to new all-time highs after President Trump announced deals with key trading partners. The blue-chip S&P 500 and technology-focused Nasdaq indices returned 1.3% and 1.0% respectively.
The threat to impose “reciprocal” tariffs on 1 August put trade negotiations with Japan and the EU into overdrive before deals were eventually reached in quick succession. US importers of goods, including automobiles and car parts, from the pair will pay a 15% tariff while Japan committed to invest $550 billion in the US at President Trump’s direction.
The EU agreed to buy $750 billion of oil, gas, nuclear fuel and semiconductors and $600 billion of military equipment over the next three years. It also stepped back from hitting the US with €93 billion of retaliatory tariffs.
President Trump hailed the agreement as the “biggest deal ever made”, speaking alongside European Commission President Ursula von der Leyen at his Turnberry golf course.
However, the reaction other European leaders has been very critical with France’s Prime Minister François Bayrou calling it “submission” and German Chancellor Friedrich Merz said the agreement will “substantially damage” his nation’s finances.
Corporate earnings reports also provided some tailwinds. Google’s parent company Alphabet reported revenue of $96.4 billion for the second quarter, ahead of analysts’ forecasts and up 14% on the year. Its cloud business led the charge and advertising sales were strong in both Search and YouTube. Chief executive Sundar Pichai also revealed that subscriptions represent a growing portion of its revenues as more users are signing up to YouTube TV to watch their favourite content.
Looking ahead, Pichai added that the company expects to invest $75 billion in capital expenditures this year to expand its artificial intelligence capabilities in the face of fiercer competition from AI search engines, such as OpenAI’s ChatGPT. Google now includes AI summaries at the top of search results and, more recently, it rolled out “AI Mode” to users in the US which replaces traditional search results altogether.
Lloyds Banking Group also surprised on the upside, reporting a 31% rise in profits to £2 billion in the second quarter, enabling it to increase its dividend by 15%. The UK’s largest mortgage lender benefited from a smaller-than-expected impairment charge for bad loans as a resilient housing market has offset a more challenging economic backdrop, including higher unemployment.
Chief executive Charlie Nunn used the results announcement as an opportunity to warn Chancellor Rachel Reeves against targeting banks in October’s budget to help to fix the public finances, asserting that “we already have the highest tax regime on the financial services sector in any major economy”.
Some companies did, however, disappoint last week, headlined by Tesla. Shares in the electric vehicle manufacturer tumbled more than 8% on Thursday after it reported that sales of its best-selling Model Y and Model 3 fell 12% compared to a year ago and sales for its more expensive models, including the Cybertruck. Tesla has lost market share to Chinese rivals such as BYD and chief executive Elon Musk warned that the company “probably could have a few rough quarters” after the One Big Beautiful Bill Act ended $7,500 federal EV tax credits.
In commodities markets, Brent crude held edged back above $70 a barrel on speculation that Saudi Arabia will raise the official selling price of Arab Light crude to Asian buyers. Precious metals gold and silver, however, trade lower as progress in trade deals reduced safe-haven demand.
There is much to look forward to in the coming days which could have a profound impact in markets. In a blockbuster week for earnings, high-flying technology giants, Apple, Amazon, Facebook’s parent Meta Platforms and Microsoft are all due to report alongside London listed HSBC Holdings, Rio Tinto and Unilever. In the economic calendar, the Federal Reserve will announce its interest rate decision this evening, but despite the intense pressure from the White House to cut rates immediately, it is not expected to make any changes. On Friday afternoon, the US Labor Department will release the non-farm payrolls report for July, which will shed more light on how well the economy is holding up.
(Cover Image Source: JJ Ying)