Written by Millan Chauhan
Last week, global equity markets rose by +1.5% after the US reached tariff agreements with Japan and the EU. The US set a 15% tariff on most Japanese exports, lower than the previously threatened 25%. This positive development resulted in a +5.2% rise in Japanese equities (MSCI Japan), outperforming global markets. The auto sector was included in these tariffs, benefiting Japanese car makers as the 15% rate is lower than those applied to its competitors, which boosted the share prices of companies like Toyota and Honda. As a reminder, we currently maintain an overweight position in Japanese equities across our portfolios, which has contributed positively to overall portfolio performance this month. Although this agreement contributed positively to short-term performance, we maintain a favourable outlook on the ongoing corporate governance reforms taking place in Japan.
This deal stands out from recent ones with Indonesia and the Philippines because Japan is a major US trade partner, holding a trade surplus. In 2024, Japan exported about $148bn in goods, including vehicles and machinery, making it the US’s fifth-largest import source. Conversely, the US exported approximately $80bn of goods, which includes oil and gas and pharmaceuticals. Japan’s Prime Minister, Shigeru Ishiba described the agreement as “the lowest figure to date for a country maintaining a trade surplus with the United States.” The Japanese government also announced its commitment to supporting investments totalling approximately $550bn, aimed at strengthening several US industries, with a particular focus on sectors such as pharmaceuticals and semiconductors.
It was subsequently announced that the US and the EU had reached an agreement on tariffs, effectively averting a transatlantic trade dispute. Under the terms of the agreement, a 15% tariff will be maintained on most EU imports, down from the previously imposed blanket rate of 25%. While this reduction is viewed positively by markets, it was viewed less positively by EU politicians, and the tariff remains higher than the 10% level agreed upon in the separate deal with the UK.
Notably, the complexity of this agreement is heightened by the structure of the EU, which comprises 27 member states, each with its own distinct economic interests and regulatory framework. The US continues to run its second-largest trade deficit with the EU (after China), having imported $236 billion more in goods from the bloc than it exported in 2024. The US and China have also entered a new round of trade negotiations, as the 90-day truce comes to an end on August 12th.
Currently, it is corporate earnings season, during which companies report their financial results for the second quarter of 2025. Alphabet, the parent company of Google, reported results that surpassed analyst expectations, primarily driven by a 32% increase in its Google Cloud business. The company also announced plans to raise its capital expenditures on AI infrastructure by an additional $10bn, reaching a total of $85bn for 2025. This announcement had a positive impact on other stocks with exposure to artificial intelligence. In contrast, Tesla, an electric vehicle manufacturer, reported a 12% decline in revenue and a 23% decrease in earnings, attributing these results to increased competition from China. Last week, the S&P 500 closed up by 1.6%.
In summary, while markets respond to short-term news flow and developments, our analysis of opportunities and investment views is based on a long-term perspective, which we regard as an effective way to address short-term uncertainty.
All performance figures are stated in Sterling terms, unless otherwise specified.
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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 28th July 2025.
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