Trade Deal with Japan Lifts Indexes

STOCK INDEX FUTURES

Stock index futures are higher after the US struck trade deals with Indonesia, the Philippines, and Japan and as markets brace for another round of earnings.

Indonesian goods will face a 19% tariff, as well as a 40% tariff on any “transhipped” goods, although key specifics on how the US will apply the tariffs remain unclear. Meanwhile, officials said no tariff would apply to 99% of US goods entering Indonesia. The 19% tariff rate is considerably lower than the 32% tariff President Trump threatened back in April. Officials also announced that Indonesia will reduce several nontariff barriers, such as accepting US safety regulations for cars, medical devices, and pharmaceuticals, and eliminating preshipment inspections for agricultural goods. Additionally, Indonesia will remove export controls on rare-earth minerals and drop plans to tax cross-border data flows, a key request of US tech firms. The Philippines will also face a 19% tariff under their deal with the US, while US exports to the country will face no tariffs. President Trump also noted that the two countries will continue military cooperation as well.

The trade agreement between the US and Japan will see Japan face a 15% tariff rate, lower than the 25% planned in the tariff letter, while Japan will invest $550 billion in the US. The US will receive 90% of the profits from the investments, according to President Trump’s post on social media. Japan will also open to trade, opening the country up to American goods such as cars, rice, and other agricultural products. Additionally, Japan will enter into a joint venture for liquified natural gas exportation in Alaska. Critically for Japan and its auto industry, tariffs on autos will be reduced from 25% to 15%, although tariffs on steel will remain at 50%.

The deals come as the prospects of a deal with the EU and India have reportedly soured over the last couple weeks as investors wait for any signs of progress in negotiations. Trade talks between the US and India are deadlocked on key agricultural and dairy products, clouding the prospect of an interim deal before August 1. Meanwhile, the European Union is readying a retaliatory set of tariffs in case trade talks fail. Treasury Secretary Scott Bessent said he would soon meet top Chinese officials to extend the two countries’ trade truce, saying he expects the two economic powerhouses to work together on issues like manufacturing and oil.

On the earnings front, Google parent Alphabet and Tesla are set to kick off highly anticipated second-quarter results from the “Magnificent Seven” after the bell Wednesday. Investors will be looking for signs that AI investments are starting to pay off, as companies pour billions into the AI race. Earnings results from a wave of companies on Tuesday were mixed. The stocks of General Motors, Philip Morris, RTX, and Lockheed Martin sank after their quarterly results disappointed Wall Street. General Motors reported that its core profit sank over 32% in the second quarter as tariff headwinds sapped $1.1 billion from its results and warned that the hit would be bigger in the current quarter.

US existing home sales data for June will be released at 9:00 a.m. CT. Economists are expecting 4.00 million sales. New home sales data alongside weekly jobless claims are released Thursday, followed by June durable goods figures on Friday.

CURRENCY FUTURES

The USD index held firm as markets remained focused on trade deals coming out of the US. Markets also await economic data out of the US, which could offer a leading indication into the broader economic outlook. The dollar had come under pressure in recent days amid rising uncertainty surrounding the August 1 deadline for most countries to finalize trade deals with Washington, raising concerns about a potential escalation in global tariffs.

Euro futures are lower as uncertainty about trade negotiations between the United States and the European Union grips markets. The EU Commission plans to submit counter-tariffs on 93 billion euros ($109 billion) of U.S. goods for approval to EU members. Meanwhile, European Trade Commissioner Maros Sefcovic will hold talks with US Commerce Secretary Howard Lutnick Wednesday afternoon. President Trump has reportedly been pushing for a 15%-20% baseline tariff, higher than the 10% baseline that had been the center of months of talks. The European Central Bank is widely expected to leave its policy rates on hold on Thursday, with the deposit rate staying at 2.00%. Market participants will be looking for any clues on when it might cut interest rates again, though the central bank will likely try to avoid giving signals for the next meeting in September.

British pound futures are higher, lifted by optimism across global markets following the US-Japan trade deal. The UK government will continue to stick to its budget rules despite a series of challenges that include big changes in geopolitics and trade, Chancellor of the Exchequer Rachel Reeves said Tuesday. With borrowing costs rising and economic growth remaining weak, tax rises or spending cuts may be needed if the government is to continue to stick to its rules. Provisional purchasing managers’ surveys on manufacturing and services activity during July are released on Thursday. Retail sales data for June and the latest GfK consumer sentiment survey for July will be published on Friday. Recent data has pointed to a weak UK economy, with GDP contracting in April and May. High inflation in the country means the Bank of England is expected to stick to a gradual, quarterly reduction to its interest rates. Focus from the PMI data will be paid to the employment components for any clues on how hiring held up in the manufacturing and services sectors. Payroll data showed that payroll in the UK fell for the fifth straight month last week. The unemployment rate in May ticked up to 4.7%, up from 4.6% in April.

Japanese yen futures are higher following the trade agreement between Japan and the US, which saw a key reduction in tariffs for Japan’s auto industry, which is central to its economy. Japan’s Nikkei Stock Average closed up 3.5%, and Toyota Motor shares rose 14% on the news, with investors viewing the blow to Japan’s economy as less severe than feared. Gains in the yen were limited after reports that Prime Minister Ishiba planned to step down next month following the upper house election defeat, although Ishiba said the reports were “completely unfounded,” leading to a recovery. The trade deal offers the Bank of Japan more certainty surrounding the future of the Japanese economy and adds potential for the bank to hike interest rates later this year. Government data due Friday is expected to show inflation remains above the BOJ’s 2% target. Core consumer prices excluding fresh food in the Tokyo metropolitan area are expected to have risen 2.9% in July from a year earlier, slowing slightly from June’s 3.1% gain. Markets are expecting the Bank of Japan to keep rates steady at its July 30-31 meeting.

Australian dollar futures are higher, supported by the US-Japan trade deal and improved market sentiment. Australia plans to switch to monthly consumer price data releases, a decision that could potentially speed up the pace of interest rate changes. Australia is one of the few developed world countries to report CPI quarterly, making it hard for policymakers to read inflation trends in a timely manner. The head of the central bank, Michele Bullock, is due to speak on inflation and employment on Thursday and is likely to be asked about the importance of the data shift. Minutes from the Reserve Bank of Australia’s meeting earlier this month showed that the bank believed an interest rate cut would have been inconsistent with their strategy of easing monetary policy in a cautious and gradual manner. Markets are fully pricing in that the bank will deliver a rate cut in August.

INTEREST RATE MARKET FUTURES

Futures are lower across the curve as a rise in risk appetite took demand away for safe havens following the announcement of several trade deals. There’s little economic data on the calendar for the next several days, and Fed policymakers are behind the curtain of their pre-meeting monetary-policy blackout until Powell’s presser on July 30. This leaves room for markets to focus on any developments from the White House. Yields are likely to react to any developments or setbacks in trade negotiations with other countries, particularly with the EU and India.

Federal Reserve Governor Christopher Waller reiterated his backing for a July rate cut, pointing to a weakening labor market and subdued inflation risks. He emphasized that any inflationary effects from tariffs would likely be short-lived and said inflation expectations remain stable, giving the Fed flexibility to ease.

The Treasury will auction $13 billion in 20-year bonds on Wednesday and $21 billion in inflation-protected TIPS on Thursday.

The 10-year Treasury yield is 4.36%, and the 30-year yield is 4.92%. The spread between the two- and 10-year yields remained at 51 bps.

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