A US-Japan trade deal announced

A trade deal between the US and Japan has been reached, as pressure builds for countries to conclude negotiations ahead of the 1 August deadline. Under the agreement Japanese imports will face a 15% tariff, a materially lower rate than the 25% that the US administration had earlier threatened to impose. Japan will also be required to invest USD 550bn in the US. In a social media post, President Trump stated that Japan would “open their country” to US car and agricultural goods imports. US tariffs on Japanese cars and auto parts will be lowered to 15% from 25%. This reduction is noteworthy as the automotive sector accounts for the majority of the USD 63bn trade surplus Japan runs with the US.

Reports suggest that the Qatar Investment Authority (QIA) is preparing to put USD 4bn into a new tourism project on Egypt’s Mediterranean coast in a similar vein to the UAE’s USD 35bn Ras el-Hikma investment that was announced in February 2024. Phase 1 would cover around a quarter of the project’s mooted 240,000 sqm area and encompass resorts and luxury houses. The Egyptian government would be entitled to 15% of revenues which would provide an additional income stream and help narrow the fiscal deficit.

UK public sector net borrowing rose to £20.7bn in June, up from £17.4bn in May. The outturn was driven by both an increase in debt-interest payments and a decline in tax receipts. The weaker-than-expected tax take was in part due to lower employee PAYE receipts, highlighting the impact of a softening UK labour market. The June print has spurred speculation that further tax hikes will be required to fill be budget shortfall.

Today’s Economic Data and Events

18:00 EC consumer confidence (Jul): forecast -15.0

Fixed Income

US Treasury yields fell further on Tuesday, with both the 2yr and 10yr declining by around 3bps to reach 3.8334% and 4.344%, respectively.

European bond yields also saw widespread declines. The 10yr Bund yield fell 2bps to 2.588%, while the 10yr Gilt yield declined by 3bps to 4.568%.

FX

The dollar saw another day of weakness against major peer currencies, with the spot index falling 0.5% on Tuesday. EURUSD gained 0.5% to reach 1.1754, while GBPUSD gained 0.3% to 1.3533. USDJPY fell 0.5% to 146.63.

In emerging markets, USDTRY rose 0.07% to 40.4163, while USDINR gained 0.08% to reach 86.3687.

Equity Markets

US equity markets made small gains on the day, with tech stocks struggling ahead of a set of big-name earnings results due today. The S&P 500 rose 0.06%, reaching a new high. Both the NASDAQ and the Dow Jones rose 0.4%.

The outlook for an EU-US trade deal continued to weigh on European equity markets. The Eurostoxx 50 fell almost 1%, the CAC 40 declined by 0.7% and the DAX fell 1.1%. The FTSE 100, in contrast, rose 0.1%.

Locally, the DFM fell 0.3% and the ADX declined by 0.6%. The Tadawul dropped 1.3%.

Commodities

Oil futures fell for a third consecutive day on Tuesday. Brent crude declined 0.9% to USD 68.59/b and WTI fell 1.5% to USD 66.21/b. The API reported that US crude inventories declined by 557k barrels last week, while distillate inventories rose.

Gold saw further gains, rising 1% to close at USD 3,431.48 per ounce.