Wednesday’s market mood shifted between cautious optimism and geopolitical tensions as traders digested the U.S.-Japan trade deal—hailed by President Donald Trump as the largest ever—with sweeping tariff cuts and $500 billion in Japanese investments boosting sentiment. U.S. Treasury Secretary Scott Bessent’s confirmation that Trump has stepped back from efforts to remove Federal Reserve Chair Jerome Powell provided relief amid intense debates over Federal Reserve independence. However, Trump’s hardline stance on Russia and Iran kept market sentiment on edge.
Trade optimism extended with Trump announcing near-final trade agreements with Indonesia and the Philippines, while Canadian Prime Minister Justin Trudeau signaled tougher, prolonged negotiations ahead amid ongoing tariff disputes. Meanwhile, European Union-China trade talks faced hurdles after China raised concerns over EU sanctions on Chinese firms. EU Trade Commissioner Maros Sefcovic called this week’s EU-China summit a critical opportunity and is preparing fresh talks with U.S. Commerce Secretary Lutnick, who praised AstraZeneca’s $50 billion plan to build a manufacturing facility in the U.S. as “another win for American manufacturing.”
Political risks loom in Japan, where Prime Minister Fumio Kishida confirmed the trade deal but withheld comments on its economic impact following his party’s losses in recent parliamentary elections. Moody’s warned of potential political instability, with reports suggesting Kishida may resign by August. The deal also faces opposition from the top three U.S. automakers, underscoring lingering trade tensions despite official optimism.
Economic data took a backseat as the U.S. Richmond Federal Reserve Manufacturing Index for July plunged to -20.0, its lowest level since late 2024, highlighting manufacturing weakness and weighing on risk appetite.
In the cryptocurrency market, strong institutional demand from major corporations and exchange-traded funds (ETFs) kept buyers optimistic despite a recent pullback in prices of top cryptocurrencies like Bitcoin (BTC/USD) and Ethereum (ETH/USD). The month-end consolidation following the “Crypto Week” rally also contributed to this slight price correction.
Against this backdrop, the U.S. Dollar Index (DXY) retreated to a near two-week low after three consecutive days of decline, trimming gains made over the past six months. This dollar pullback supported gold, major currencies, and Antipodean pairs (Australian and New Zealand dollars), while cryptocurrencies briefly bounced before softening, equities seemed dicey, and crude oil fell to a three-week low despite a surprise inventory draw and renewed Iranian geopolitical threats.
Bond yields generally eased, though Japanese government bond yields surged early Wednesday on the trade deal news, helping USD/JPY recover after a two-day losing streak—reflecting a complex market navigating trade breakthroughs, geopolitical risks, and Federal Reserve uncertainty.
Latest moves of key assets
- Gold slips from a 5-week high, testing a three-day uptrend near $3,425.
- Bitcoin (BTC/USD) dips 1.25% intraday but holds above $118,500, aiming for weekly gains.
- Ethereum (ETH/USD) falls 1.75% to $3,680, yet remains positioned for weekly gains.
- U.S. Dollar Index (DXY) hovers near 97.50 after a three-day decline.
- Wall Street closed mixed: Nasdaq eased from record highs, while S&P and Dow gained slightly; U.S. futures and global stocks edged higher.
- WTI Crude drops 0.60% to $65.00, marking a third straight day of losses at a July low.
An active day ahead…
Markets are buzzing ahead of earnings from Alphabet and Tesla, plus reactions to the latest U.S.-Japan trade deal and positive updates on U.S. trade talks with the EU, Indonesia, and the Philippines.
Political pressure to keep interference out of the Fed remains crucial, especially after Bassent confirmed Trump’s retreat from attempts to remove Fed Chair Powell. Trump’s stance on Russia and Iran could also impact market sentiment and support the US Dollar’s recent bounce.
Crude oil prices could stay under pressure unless inventories show a surprising draw. Bitcoin (BTC/USD) and Gold might cut daily losses if US equities and bond yields reflect optimism tied to major earnings. Growing institutional demand for cryptocurrencies may also help BTC aim for a weekly gain after last week’s pause in its three-week rally.
