A look at the day ahead in European and global markets from

Stella Qiu

Just as U.S. corporate earnings are starting to show some

negative impact from higher tariffs, President Donald Trump

stole market attention by announcing a trade deal with Japan,

pleasantly surprising investors.

That had everyone hoping for more - certainly the prospects

of an agreement between the U.S. and the European Union have

improved now, with representatives from the 27-member bloc

coming to Washington for more talks on Wednesday.

European stock futures rose 1.1% as a result of the

optimism.

South Korea is studying the Japan deal as its officials fly

to the U.S. for more trade talks. U.S. and Chinese officials are

meeting next week in Stockholm to discuss an extension to the

tariff deadline.

The Japan deal included reduced 15% tariffs for auto exports

to the U.S., down from 25% before. That lifted shares of

Japanese automakers, with Toyota Motor ( TM ) jumping 15% and

Mazda Motor ( MZDAF ) rallying 17%.

The broader benchmark Nikkei soared 3.2% to the

highest in a year, while the benchmark 10-year Japanese

government bond yield jumped 9 basis points as the reduced

uncertainty helped to clear the path for the Bank of Japan to

resume interest rate hikes.

The dollar initially dipped against the yen but was last up

0.2% to 146.9 yen after the local Mainichi newspaper

reported Prime Minister Shigeru Ishiba has made up his mind to

resign following losses in Sunday's upper house election.

Trade news aside, investors will be watching earnings

reports later in the day from Tesla and Google's parent

Alphabet, two of the Magnificent 7 stocks that have

driven much of the market rally due to AI optimism.

So far, U.S. earnings have been mixed as investors

scrutinise them for any signs of a slowdown in the U.S. economy

and impact from Trump's tariffs. General Motors ( GM ) tumbled

8.1% after the automaker reported a $1 billion hit from tariffs

to its quarterly results.

Key developments that could influence markets on Wednesday:

- Eurozone consumer confidence flash for July

- U.S. earnings from Alphabet, Tesla, IBM ( IBM )

(Editing by Muralikumar Anantharaman)