US and Japan Reach Trade Agreement the Previous Day
Japan to Invest $550 Billion in US, Opens Rice and Auto Markets
US Lowers Reciprocal Tariff Rate on Japan from 25% to 15%
Optimism Grows for Additional Trade Talks with EU and Others
Alphabet and Tesla to Announce Earnings After Market Close
The three major indexes on the New York Stock Exchange opened higher on July 23 (local time). Optimism over additional trade agreements is rising after the Donald Trump administration reached a trade deal with Japan the previous day.
As of 10:59 a.m. on this day at the New York Stock Exchange, the blue-chip Dow Jones Industrial Average was up 190.49 points (0.43%) from the previous trading day, standing at 44,692.93. The S&P 500 index, which focuses on large-cap stocks, rose 18.18 points (0.29%) to 6,327.8, while the tech-heavy Nasdaq index gained 26.38 points (0.13%) to 20,919.07.
President Trump announced the previous day that a trade agreement with Japan had been reached. In exchange for Japan opening its rice and automobile markets and pledging to launch a $550 billion investment program in the United States, the U.S. reduced the reciprocal tariff rate on Japanese goods from 25% to 15%. Notably, for automobiles?Japan's top export to the U.S.?the item-specific tariff was halved from 25% to 12.5%, and with the existing tariff rate of 2.5% added, a total tariff of 15% will be applied.
With the expiration of the reciprocal tariff suspension set for August 1, optimism is growing over the conclusion of the U.S.-Japan trade negotiations and the possibility of additional agreements. President Trump also stated that U.S. and European Union (EU) negotiators are meeting to reach a trade agreement between the U.S. and the EU.
U.S. Treasury Secretary Scott Besant also expressed optimism about the possibility of an agreement with the EU. In an interview with Bloomberg TV, Secretary Besant responded to reports that the EU is preparing to impose a 30% retaliatory tariff on $100 billion worth of U.S. products by saying, "It's a negotiation tactic," and added, "I would do the same." He continued, "Talks are progressing better than before," and "We are making good progress with the EU."
Ian Lyngen, Managing Director and Head of U.S. Rates Strategy at BMO Capital Markets, commented, "As the August 1 deadline approaches, investors have been encouraged by the recent trade negotiation announcements." He analyzed, "Progress in the trade war provides clarity and will help the market adapt to and move forward in the new global trade environment."
Investors are also awaiting the earnings reports of Google parent company Alphabet and Tesla, which will be released after the market closes. The earnings announcements from these big tech companies are expected to set the tone for the market going forward. In addition to earnings, attention is focused on the messages these companies will deliver regarding artificial intelligence (AI) demand and spending. The second-quarter earnings season has gotten off to a smooth start. According to market research firm FactSet, 105 S&P 500 companies have reported earnings so far, and 86% of them have exceeded analysts' expectations.
U.S. Treasury yields are on the rise. The benchmark 10-year U.S. Treasury yield, a global bond market indicator, rose 3 basis points (1bp = 0.01 percentage point) from the previous session to 4.37%, while the 2-year U.S. Treasury yield, which is sensitive to monetary policy, rose 2 basis points to 3.85%.
By stock, U.S. department store chain Kohl's, which has emerged as a "meme stock" (stocks that gain popularity online), surged 37.6% the previous day but is now down 15.5%. Other meme stocks, GoPro and Krispy Kreme, are up 45.6% and 11.7%, respectively. Alphabet, which will report earnings after the close, is down 0.68%, while Tesla is up 0.51%.
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