Investors are getting some relief from trade war jitters.
President Donald Trump announced on Tuesday that the US reached a trade deal with Japan, posting on Truth Social that the US would receive a $550 billion investment from Japan.
Tariffs on goods from Japan will be lowered to 15%, down from 25% Trump threatened earlier this month.
Stocks jumped on the news, with the Dow rising over 200 points at the open. Share of Japanese automakers spiked in trading in Tokyo, with Toyota up 14% and Honda rising 12%.
"News of the long-awaited US-Japan trade deal represents a milestone in the president's trade jigsaw, reinforcing the perception that the White House is open to compromise," Michał Jóźwiak, analyst at Ebury said Wednesday.
Here's where US indexes stood at 10 a.m. ET on Wednesday:
- S&P 500: 6,323.68, up 0.22%
- Dow Jones Industrial Average: 44,677.35, up 0.39% (+171.91 points)
Nasdaq composite: 20,897.83, up 0.03%
The response clearly indicates that investors are eager to see more trade deals get done. Trump has framed the Japan deal as beneficial to both countries, describing it as "a great deal for everybody."
The deal comes after Trump had accused Japan of being "spoiled" and made it seem as though no deal would be reached. For investors, this may be reassuring, as it implies he is open to compromising.
With stocks cruising at record highs, optimism has risen about the prospects that tariffs won't severely impact the US economy.
Experts from HSBC Global have speculated this week that tariff-driven inflation could compromise growth, but the positive response to Trump's deal with Japan suggests that trade-related anxieties may continue to ease as more countries reach a deal.
"We estimate that the US's effective tariff rate on Japanese products is around 17%, in line with our baseline assumption," said Oxford Economics' Director of Japan economics Shigeto Nagai and lead Japan economist Norihiro Yamaguchi.
The economists added, "Lower tariffs on autos are a positive, given the sector's significant contribution to the economy and its broad domestic supporting base," noting that the trade deal has been well received in Japan.
European stock indexes reacted positively to news of the Japan trade deal, with investors hoping that Trump and the EU soon come to an agreement that avoids a damaging trade war.
"This bullishness comes as traders responded to news of the US-Japan tariff deal, and as President Trump hinted that a deal with the European Union was next on his 'to-do' list," said Trade Nation senior market economist David Morrison.
