Trade Outlook Elevates Wall Street Pre-Bell; Asia, Europe Up

The global markets have begun to price in a cautiously optimistic trade outlook, with Asia and Europe leading gains ahead of Wall Street’s opening bell. Recent trade agreements, mixed corporate earnings, and central bank policies have created a fragile equilibrium of hope and uncertainty. Below is a breakdown of regional performances and the factors driving this momentum.

Asia: Trade Optimism Fuels Gains

Asian markets surged on Friday, with Japan’s Nikkei 225 climbing 1.49% to 37,478.58, led by tech and financial stocks. SoftBank Group (+2.3%) and NTT Data (+14.4%) highlighted resilience in the technology sector, while automakers like Toyota (+1.2%) and Honda (+1.9%) signaled cautious optimism about global demand.

The S&P/ASX 200 in Australia rose 0.49% to 8,231.40, with tech stocks such as Block (Afterpay) (+5.3%) and energy firms like Beach Energy (+2.3%) outperforming. However, miners like Rio Tinto (-0.9%) lagged, reflecting lingering concerns over China’s slowdown.

Europe: Divergent Gains Amid Trade Hopes

European markets closed higher on Thursday, with Germany’s DAX hitting a record high of 23,263, up 1.0%, driven by corporate earnings and trade optimism. ASML (+3.4%) and UniCredit (+2.1%) led gains, while healthcare stocks like Ambu (-11.9%) dragged on the Stoxx 600, which closed down 0.5%.

The French CAC 40 rose 0.9% to 7,662, buoyed by AB InBev (+3.2%) after strong earnings. Meanwhile, the UK’s FTSE 100 fell 0.4%, weighed down by sector-specific volatility.

The Trade Catalyst: U.S.-UK Agreement and China Talks

The U.S.-U.K. trade framework, finalized in May, averted a potential tariff clash and signaled progress in U.S.-China trade negotiations. BlackRock’s Q2 outlook noted that U.S. tariffs could push effective rates to 1930s levels, but markets are pricing in a “wait-and-see” stance.

Risks Lurking Beneath the Surface

Despite the gains, risks remain:
1. U.S.-China Tensions: China’s GDP growth is projected to slow to 4.1% in 2025, down from 5.0% in 2024, as tariffs disrupt supply chains.
2. Currency Moves: The yen weakened to 145 per dollar, while the Aussie dollar traded at $0.639, reflecting dollar strength amid geopolitical uncertainty.
3. Corporate Headwinds: Orsted’s 1.3% drop after canceling a windfarm project due to tariff-related costs underscores sector-specific vulnerabilities.

Investment Implications

• Overweight Japan: BlackRock’s recommendation to overweight Japanese equities aligns with the Nikkei’s sectoral strength and corporate reforms.
• Underweight European Periphery: Spain, Italy, and France face political risks and valuation overhangs.
• High-Yield Credit: European high-yield bonds offer attractive valuations amid stable growth.

Conclusion

The upside momentum in Asia and Europe reflects a market betting on trade de-escalation, but the path ahead is fraught with risks. Key data points include:
- Vietnam’s 6.6% GDP growth in 2025 hinges on avoiding U.S. tariffs, which account for 28% of its GDP.
- Turkey’s 3% growth relies on post-earthquake reconstruction, even as inflation remains elevated at 32.7%.
- China’s trade surplus at record highs risks further U.S. retaliation, threatening global supply chains.

Investors should prioritize diversification and sector-specific analysis, favoring tech and financials in Asia while avoiding trade-sensitive sectors in Europe. The markets are up, but the trade war’s final chapter remains unwritten.