Trump announces a trade deal with Japan

General market commentary

Equity markets were mixed on Tuesday, with megacap tech shares under pressure, halting a nine-day winning streak and dragging the Nasdaq 0.4% lower. Sentiment was more upbeat elsewhere, as the S&P 500 edged marginally higher to another record high, supported by broad-based sector gains that helped offset weakness in the so-called "Magnificent Seven". The Dow rose 0.4%, while the Russell 2000 small cap index outperformed, rising 1%. Performance in other markets was also mixed, with emerging market equities firmer, Japanese shares weaker, and euro area bourses under pressure. In fixed income, US government bonds rallied, pushing the 10-year Treasury yield down 4 basis points to 4.33%. Yields remain rangebound between 4.0% and 4.5%, as the Federal Reserve sticks to a cautious, data-driven approach. Elsewhere, the dollar was steady on a trade-weighted basis, and oil prices dipped 0.6% but continue to trade within the $65–70 per barrel range.

Corporate earnings remain in focus, with results from Tesla and Alphabet due later today. So far, reports have mostly exceeded expectations, which had been lowered amid second-quarter tariff disruptions. General Motors beat on earnings per share, though profits fell year-on-year due to a $1.1 billion tariff hit, with further pressure expected in the third quarter. Trade policy remains a key source of market uncertainty, particularly ahead of President Trump’s August 1 deadline. A limited deal was announced with Japan this morning, introducing a 15% tariff on Japanese exports alongside commitments for greater market access. While lower than the initially proposed 25%, the levy defies Japan’s calls for full exemption and raises concerns for autos and steel. Analysts and the Federal Reserve have warned that such tariffs could add to domestic inflationary pressure. Meanwhile, President Trump renewed criticism of the Federal Reserve, calling for large rate cuts and questioning renovation costs. Treasury Secretary Bessant offered muted support for Chair Powell, who is widely expected to keep rates on hold at next week’s FOMC meeting. Focus now turns to Thursday’s July PMI data for further insight into business sentiment.

Latest market and economic update

Asian equities mostly rose on Wednesday, led by a 2.7% surge in Japan’s Nikkei 225 to a one-year high, after President Trump announced a trade deal with Japan featuring lower tariffs. Gains elsewhere were capped by weakness in tech shares, especially chipmakers. Chinese, Australian, and Hong Kong markets advanced, while South Korea’s KOSPI lagged.

U.S. equity futures edged higher overnight following President Trump’s new trade deal with Japan, which includes a 15% export tariff. Investor focus turned to earnings from Tesla, Alphabet, and others including Hasbro and Chipotle. Futures gains followed a mixed Tuesday session, with chipmakers and industrials under pressure from weak results and AI-related concerns.

European equities fell for a third consecutive session, with the STOXX 50 down 1% and the STOXX 600 off 0.5%, amid ongoing US tariff concerns. Defence shares, including Rheinmetall, BAE Systems, and Thales, declined sharply, while tech giants ASML and Infineon each lost over 3%. Investors awaited earnings from SAP and UniCredit.

The US dollar remained weak today, easing after President Trump announced a reduced 15% tariff deal with Japan. The dollar index held steady near 97.48, down 6.6% since April. Versus the euro, the dollar slipped 0.2% to $1.1736, weighed down by tariff uncertainty and concerns over Federal Reserve independence.

Oil prices rose in Asian trading, boosted by optimism over a new US-Japan trade deal and a surprising drop in US crude stockpiles. Brent crude gained 0.4% to $68.84, WTI rose 0.3% to $65.50. The trade deal eased tariff concerns, while lower inventories suggested stronger summer fuel demand, supporting market sentiment.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

SAP reported strong first-half results after the market close, with profit surging to €3.48 billion from €60 million a year earlier, and EPS rising to €2.96. Revenue grew to €18.04 billion. The company maintained its 2025 outlook, expecting steady cloud and software growth alongside operating profit of €10.3–€10.6 billion at constant currencies.

Texas Instruments’ profit forecast disappointed investors, citing weaker demand for analog chips and tariff-related uncertainty. Shares dropped 11.9% post-trade. CEO Haviv Ilan highlighted supply chain disruptions and shallow automotive recovery. The firm expects flat margins in Q3 amid steady factory loads and a higher tax rate under new US legislation, impacting profits through 2025.

Coca-Cola beat quarterly earnings estimates, driven by higher prices despite a 1% volume decline in key markets like the US, Mexico, and India. The company plans to launch a cane sugar Coke in the US, boosting costs but catering to demand. North America volumes fell amid socioeconomic pressures and a past boycott, while revenue rose 2.5%.

Lockheed Martin’s second-quarter profit fell 80%, hit by a $1.6 billion pretax loss from a classified Aeronautics program and helicopter projects. The company cut its 2025 profit forecast by 18%, citing inflation and supply chain costs. Despite misses on revenue and profit, adjusted earnings beat estimates, while tariff impact remains limited.

RTX cut its 2025 profit forecast due to a $500 million tariff hit, despite strong demand for engines and maintenance. Q2 sales rose 9% to $21.6 billion, beating expectations, with solid performance across all segments. While defence demand remains robust, tariffs and supply chain pressures are weighing on margins. Adjusted Q2 profit was $1.56 per share.

Baker Hughes beat Q2 profit expectations, driven by strong natural gas demand despite a drop in oil producer spending. North American upstream spending is expected to fall low double digits, with international down high single digits. The firm’s gas tech orders rose 28%, and adjusted EPS was 63 cents, beating estimates. Shares rose over 1%.

Halliburton posted a 33% fall in Q2 profit to $472 million and warned of a sharper-than-expected full-year revenue decline, citing weak oilfield demand and lower drilling activity. North American and international revenues dropped, while tariffs hit earnings. CEO Jeff Miller flagged a softer outlook as oil producers cut spending amid falling prices and market uncertainty.

Sherwin-Williams cut its full-year profit forecast and missed second-quarter earnings estimates due to weaker-than-expected demand for paint products, linked to a downturn in U.S. home sales. The company lowered capital spending plans and warned of ongoing softness ahead. Q2 adjusted earnings were $3.38 per share, below expectations, while shares fell 2.8% on the results.

Enphase Energy forecast Q3 revenue below expectations, citing US tariffs on Southeast Asian solar imports and uncertainty over tax credit changes. Shares fell over 7% after hours. The company expects gross margins to decline to 41-44%, down from 46.9% in Q2, despite beating profit estimates with adjusted earnings of 69 cents per share.

Philip Morris missed Q2 revenue estimates as ZYN nicotine pouch shipments underwhelmed, sending shares down over 8%. Despite strong growth in smoke-free products, ZYN shipments fell short of expectations. Still, PMI raised its full-year profit outlook, citing solid IQOS performance and resilient cigarette sales. Adjusted earnings per share beat estimates at $1.95 versus $1.86 forecast.

Constellation Energy and Vistra Corp shares rose in after-hours trading after PJM Interconnection announced record-high capacity prices of $329.17 per megawatt-day for 2026-2027, boosting total grid capacity costs to $16.1 billion. This benefits power generators by ensuring payments for maintaining availability during peak demand, enhancing earnings prospects and driving investor optimism.

UniCredit withdrew its takeover bid for Banco BPM, citing failure to meet Italy’s Golden Power authorisation requirement. The rule allows the government to block deals on national interest grounds. UniCredit said Consob’s 30-day suspension of the offer was inadequate to resolve uncertainties, preventing meaningful engagement with BPM shareholders to improve the proposed terms.

A Microsoft patch failed to fully fix a critical SharePoint flaw, enabling cyber espionage by China-linked hackers targeting around 100 organisations, including US nuclear agencies. Despite further updates, the flaw affects over 8,000 servers worldwide, mostly in the US and Germany, though no government networks have been compromised so far.

Amazon has agreed to acquire Bee, a San Francisco startup creating an AI-enabled wristband that transcribes and summarises conversations. The deal, not yet finalised, aims to enhance user control over audio transcription. This follows Amazon’s previous wearables efforts, including its Halo health trackers and Alexa-enabled smart glasses. Bee was founded in 2022.

TD Cowen upgraded Royal Caribbean, Carnival, and Norwegian Cruise Line to Buy, highlighting strong value, rising margins, and long-term growth. Cruise revenue is set to grow 7% annually through 2029, reaching $95 billion. Margins and returns are improving, with Royal Caribbean’s EBIT margins hitting a 20-year high, positioning the sector as undervalued travel gainers.

Baird upgraded STMicroelectronics to Outperform, raising its price target to $50 on improving gross margins, a bottoming in SiC revenue, and recovery prospects in smartphones, industrials, and autos. Structural cost benefits from 300mm wafers, stronger H2 smartphone demand, and design wins in China EVs support the bullish view. Valuation remains attractive at under 11x 2027 EPS.

Loop Capital downgraded Shopify to Hold from Buy, citing valuation rather than weakening fundamentals. Shares have surged 21% year-to-date, exceeding the firm’s $120 target. While Loop sees strong AI-driven margin potential and ongoing revenue growth, it awaits a better entry point, given current valuation and volatility. Shopify remains a dominant force in online and offline retail.

JPMorgan downgraded Lululemon to Neutral, citing slowing U.S. revenue growth and weak consumer response to seasonal product updates. Second-quarter sales are expected to rise just 1.2% year-on-year. Product and macro headwinds, alongside declining store traffic, raise doubts over near-term recovery and the brand’s ability to hit its FY26 growth targets.

Upcoming data and events

Earnings from Tesla, Google, IBM, ServiceNow, GE Vernova, and UniCredit are anticipated today, offering insights across sectors. Key economic data on existing home sales and crude oil inventories will also be released, potentially influencing market sentiment and energy trends.

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