European markets opened Tuesday’s session with slight gains, supported by a decline in trade tensions after U.S. President Donald Trump hinted at the possibility of extending the negotiation deadline on tariffs. This stance partially eased the pressure, especially as the European Union was excluded from the list of countries targeted by the new tariffs.
The STOXX 600 index was steady at 543.22 points, with little change, as investors opted to wait before opening new positions in anticipation of the outcomes of negotiations with Washington. Meanwhile, the European real estate sector fell by 0.6% due to funding pressures, while basic resources stocks gained around 0.7%, supported by rising commodity prices.
German trade data revealed a surprising 1.4% drop in exports during May, contrary to expectations of a slight decline. Notably, exports to the United States fell for the second consecutive month, highlighting the early impact of the trade war on the German economy. If this weakness in external demand persists, it may directly pressure GDP in the second half of 2025 and reignite debate about the strength of growth in Europe’s largest economy.
The Japanese yen fell against most major currencies after Trump announced new tariffs on imports from Japan and South Korea, effective August 1. Although it remained relatively stable against the dollar at 146.10, the yen later dropped to a two week low of 146.44 amid expectations that the Bank of Japan will delay any potential monetary tightening.
In contrast, the Australian dollar jumped more than 1% after the Reserve Bank of Australia defied expectations and left the interest rate unchanged at 3.85%. Markets now anticipate an 85% chance of a rate cut at the next meeting to 3.60%, with inflation data at the end of July seen as a critical factor.
On the European side, the euro rose to a one year high against the yen and climbed against the dollar to 1.1735, supported by the EU’s exemption from U.S. tariffs. The British pound also advanced to 1.3642 dollars, while the Chinese yuan faced temporary pressure that was contained by direct intervention from state-owned banks.
Negotiations between Japan and the U.S. are currently focused on the automotive sector, a key driver of Japanese exports. Chief negotiator Ryusei Akazawa emphasized that no deal will be possible without clear tariff exemptions for car exports, affirming Japan’s refusal to make concessions in the agricultural sector. Trump announced a 25% tariff on Japanese goods, indicating that implementation could be postponed if a negotiated solution is reached. This leaves the door open, but the path remains risky.
This is particularly true with the Japanese Upper House elections approaching on July 20, which reduces the government’s flexibility. Amid these developments, fears are growing that the Japanese economy may slide into a slowdown or even recession, especially with recent forecasts suggesting that the tariffs could shave 0.7 percentage points off the annual growth rate.
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