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 jumping 15% and Mazda Motor 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 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

(Editing by Muralikumar Anantharaman)