Market performance has been mixed this week as earnings season gets underway and President Donald Trump’s 1 August trade deadline approaches. While last-minute deals have been struck with some economies, others remain in limbo, keeping investors on edge.
In Japan, Prime Minister Shigeru Ishiba’s ruling coalition lost ground in Sunday’s upper house elections, leaving it without a majority in either chamber of parliament. The result means it must now work with opposition parties advocating for tax cuts and increased public spending. The political setback comes amid persistent inflation now above the Bank of Japan’s 2% target for over three years and a shrinking economy in Q1. Some BOJ officials have warned of ongoing price pressures. With leadership speculation mounting, the outcome adds to regional uncertainty. That said, the yen strengthened against the dollar following the election, suggesting markets had already priced in the result. The Tokyo Stock Exchange was closed Monday for a public holiday.
Providing some relief, a long-awaited U.S.–Japan trade deal was announced overnight. President Trump revealed a $550 billion Japanese investment in the U.S. and a 15% tariff on Japanese goods, lower than the 25% previously threatened. The agreement opens Japan’s markets to U.S. exports, including cars, trucks, rice, and agricultural products. Although Japan did not offer reciprocal tariff reductions, the markets reacted favourably, and Prime Minister Ishiba praised the agreement for delivering the lowest tariff rate among trade-surplus nations.
Attention is now shifting to rising tensions between the U.S. and European Union. European shares extended losses on Tuesday, with investor nerves rattled by Trump’s 1 August deadline, after which a 30% tariff on EU imports could be imposed if no agreement is reached. In response, the EU is weighing broader retaliatory measures under its new “anti-coercion” instrument (ACI), which could restrict U.S. access to public tenders or target specific services. A previously discussed compromise of 10% tariffs on most EU exports in exchange for certain trade-offs now appears unlikely.
Market performance in the U.S. has been mixed, however the S&P 500 narrowly posted another fresh record close on Tuesday, as traders weighed the latest earnings reports and new trade developments. Nearly 90 S&P 500 companies have reported so far, with almost 85% of those topping analysts’ estimates. Eyes are on commentary from companies about macroeconomic certainty, the impact of tariffs and details on demand, and spending related to AI.
Looking ahead, earnings reports from Google parent Alphabet and Tesla are due after the bell on Wednesday. The tech-heavy Nasdaq Composite hit new highs last week and again on Monday, suggesting optimism around tech sector results. Also on the radar: Eurozone consumer confidence, UK PMI data, the ECB’s interest rate decision, UK consumer confidence, and retail sales.
Kate Mimnagh, Portfolio Economist
