U.S.-Japan trade pact; Alphabet, Tesla to report - what’s moving markets
Investing.com - U.S. stock futures rise amid optimism over the implications of a new U.S.-Japan trade pact. The White House calls the deal, which will see the U.S. slap a lower tariff on Japan than President Donald Trump had originally announced, "massive." A parade of corporate earnings is set to march on, highlighted by tech giants Alphabet (NASDAQ:GOOGL) and Tesla (NASDAQ:TSLA) after the closing bell. Texas Instruments (NASDAQ:TXN) shares slip as its quarterly profit forecast fails to impress investors.
1. Futures higher
U.S. stock futures pointed higher on Wednesday, with a new trade agreement between the U.S. and Japan that placed tariffs on the Asian nation at a lower rate than the White House had initially announced.
By 03:38 ET (07:38 GMT), the Dow futures contract had risen by 137 points, or 0.3%, S&P 500 futures had gained 17 points, or 0.3%, and Nasdaq 100 futures had increased by 26 points, or 0.1%.
The main averages on Wall Street were mixed at the end of trading on Tuesday, as investors assessed a string of fresh corporate earnings.
Shares in General Motors (NYSE:GM) slumped after the carmaker said its second-quarter income had dropped by more than a third, due largely to a $1 billion cost related to Trump’s tariffs.
Still, optimism around heavy expenditures on artificial intelligence helped to underpin some mega-cap tech stocks. A test of this enthusiasm is slated to come later today, when Google-owner Alphabet and electric car manufacturer Tesla report their latest results.
Traders were also keeping tabs on trade developments, particularly with an August 1 deadline for Trump’s elevated "reciprocal" tariffs to take effect a little over a week away.
2. U.S.-Japan trade deal
Trump has announced his administration had completed a “massive deal” with Japan, which will see the Asian country face a 15% tariff.
The president added that Japan will invest $550 billion into the U.S., of which the U.S. will “receive 90% of the Profits.”
“Japan will open their Country to Trade including Cars and Trucks, Rice and certain other Agricultural Products, and other things. Japan will pay Reciprocal Tariffs to the United States of 15%,” Trump said in a social media post.
The deal -- one of the most significant of a series of preliminary trade pacts since Trump first unveiled his heightened global levies in April -- comes after reports said Japan’s top trade negotiator, Ryosei Akazawa, met Trump in the White House on Tuesday.
While the 15% tariff is lower than the 25% initially outlined by Trump, it still goes against Tokyo’s earlier demands that Japan be exempt from all U.S. tariffs.
"The trade deal with the U.S. announced today removes a key downside risk to Japan’s economy," analsyts at Capital Economics said in a note to clients. "We estimate that the net effect of today’s announcement will be a reduction in the average tariff rate faced by Japanese exporters in the U.S. of around one percentage point."
3. Alphabet, Tesla to report
With the trajectory of Trump’s trade agenda hovering in the background, markets are also gearing up for the release of key earnings from Alphabet and Tesla.
The two companies will be the first of the so-called "Magnificent 7" tech giants to open their books during the second-quarter reporting period.
Analysts will be watching out for any update from Alphabet around its AI ambitions, especially after the search titan recently backed plans to shell out sizable investments on the nascent technology. Investors will likely want to see that the firm is using the spending to protect its search and advertising business from emerging AI rivals.
"For Google, sentiment is very mixed, with bears worried about the secular outlook for search as AI chatbots capture share and regulatory [slash] legal pressures while bulls emphasize compelling secular tailwinds in many key markets and a relatively cheap valuation," analysts at Vital Knowledge said in a note.
Tesla, meanwhile, will be under scrutiny as the carmaker struggles with intensifying competition that has eroded sales at its core auto business. Deliveries have fallen year-over-year, and further issues could be ahead after Trump’s signature fiscal bill -- which he signed into law on July 4 -- eliminated solar and electric vehicle tax credits, analysts have flagged.
Still, hopes remain that Tesla will be able to eventually develop a new revenue source from its robotics and autonomous driving plans. The Vital Knowledge analysts noted that anticipation around these ventures has kept Tesla shares elevated "beyond where it should trade based exclusively on auto fundamentals alone." Tesla’s stock price has declined by more than 12% so far this year.
4. Texas Instruments shares slip
Texas Instruments reported stronger-than-expected second-quarter results, lifted by improving demand in its industrial business, though shares slumped in extended hours trading as investors fretted over the outlook for its analog chip unit.
Revenue rose 16% from a year earlier to $4.45 billion, in line with the high end of its guidance and above analysts’ estimate of $4.35 billion.
Earnings per share came in at $1.41, including a 2-cent benefit not in the company’s prior forecast.
The company said revenue was up 9% sequentially, led by a “continued broad recovery" in its industrial division. Net income for the quarter was $1.30 billion.
For the third quarter, Texas Instruments expects revenue between $4.45 billion and $4.80 billion and earnings per share of $1.36 to $1.60. That compares with analysts’ estimates of $4.59 billion in revenue and $1.49 in EPS, according to LSEG data cited by Reuters.
Although the group is not directly impacted by Trump’s tariffs yet, expenses around chip manufacturing tools have risen and led some end customers to rein in spending. Speaking in a post-earnings call, CEO Haviv Ilan warned that a recovery in its automotive business has been "shallow" as the levies and geopolitics are "disrupting and reshaping" global supply chains.
5. Gold dips
Gold prices fell, pulling back marginally from strong gains this week after the trade deal between the U.S. and Japan boosted risk appetite and took some sheen off of its safe-haven appeal.
But the yellow metal was still less than $100 away from an April record high, as markets remained uncertain over Trump’s trade tariffs.
Caution before a closely watched Federal Reserve meeting also buoyed gold, while the dollar edged back from recent advances.
Spot gold shed 0.2% to $3,426.80 an ounce, while gold futures dipped 0.1% to $3,440.70/oz by 03:38 ET.
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