The FTSE 100 reached a record high on Wednesday after the US and Japan struck a trade deal, removing uncertainty surrounding one of the most significant US trade agreements for global growth and signalled a willingness for the US to make concessions to avoid the more damaging tariff rates.
London’s leading index touched a fresh record high of 9,080 and was trading very close to this level at the time of writing.
“News of a trade agreement between the US and Japan is fostering optimism among investors that further deals might be reached before punishing tariffs come into force,” explained AJ Bell investment director Russ Mould.
“The news helped drive the FTSE 100 to a new record high and saw gains in other markets across mainland Europe – with focus likely to now turn to the prospects of an agreement being forged between the Trump administration and EU.”
However, some analysts cautioned that while the markets reacted positively on Wednesday, the longer-term consequences of the trade deal may have ramifications for markets.
“At 15%, the US tariff on Japanese goods does not give much cause for long term celebration, despite the positive initial market reaction. Much higher product tariffs are not included in the deal,’ said George Lagarias, Chief Economist at Forvis Mazars.
“The number will still likely contribute to an increase of US inflation and put pressures on real growth for both countries. Why are the markets jubilant this morning? Because even a higher tariff is preferable to continued uncertainty. But this is hardly a catalyst for long term optimism. If the deal with Japan is the standard by which the negotiation with the EU will go, then investors and businesses should begin to price in a deterioration of the macroeconomic backdrop.”
Despite potential pitfalls down the line, most FTSE 100 shares were higher at the time of writing, with 73 of the 100 constituents trading in positive territory.
JD Sports was among the top risers as investors cheered the Japanese trade deal and what it could mean for other US trade deals more closely related to JD’s business model. JD Sport was one of the FTSE 100 stocks most heavily hit by Trump’s Liberation Day announcements.
The risk on tone to trade was underscored by weakness in defensive sectors. Centrica was the FTSE 100 top faller with a loss of 1.8% while SSE lost 1.7%.
Fresnillo fell around 1% after announcing silver production fell in Q2 due to the cessation of activities at a mine and lower ore grades.
“Fresnillo has made investors a lot of money this year thanks to soaring precious metal prices. Unfortunately, investors have now had a wake-up call that the day job still matters for the mining group,” Mould said.
“It has reported a big drop in second quarter silver production year-on-year, partially down to geological issues where the rock being mined contained lower grades of metal.
“Mining is high risk and often unpredictable, and anyone invested in this area needs to be aware of what could go wrong as well as what could go right.”