2025 Weekly Update

Market update

The S&P 500 closed the week at 6,259.75, -0.31% lower. The Dow Jones closed at 44,371.51, -1.02%, with the Nasdaq lower by -0.08%. The volatility index VIX closed the week at 16.4, down from 17.48. The Euro Stoxx 600 rose +1.15%.

The 10-year UST closed at 4.41%, up from 4.35% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 6bps. US Corporate Bond spreads: Investment Grade spreads remained at 84bps and High Yield spreads narrowed -3bps at 334bps. German 10-year Bunds yield closed at 2.72% up from 2.61% a week before. In Europe, Corporate Investment Grade spreads narrowed -4bps at 93bps and High Yield narrowed -13bps at 313bps.

The US Dollar Index (DXY) appreciated +0.69% last week and closed at 97.85. The Euro closed at 1.1689 (-0.76%); the Yen depreciated -2.05%, closing at 147.43 and the Swiss Franc depreciated -0.33%, closing at 0.7966. Gold closed at $3,355.59, appreciating +0.55%. Oil was higher, Brent closed at $70.36 (+3.02%) and WTI at $68.45 (+2.16%).

Macroeconomy

Tariffs

President Trump extended his tariff deadline to August 1st and implemented 50% tariffs on copper. At the same time, Trump sent tariff letters with rates set at 20-50%, effective Aug 1. Trump is considering blanket tariffs of 15-20% on most trading partners. The ongoing deal discussions focus on reducing trade barriers and purchasing US products. The oral arguments to the Court of Appeals for International Emergency Economic Powers Act (IEEPA) tariffs (basis for universal/reciprocal tariffs including the 10% baseline and 25% on USMCA non-compliant goods) are scheduled on July 31. Some analysts argue for the higher court to uphold the lower court's ruling that blocked the President's authority.  Consensus seems to expect the Supreme Court to uphold the ruling as well, striking Trump of this authority to impose broad-based tariffs. However, even if the IEEPA authority is taken away, the President has several other trade authorities at his disposal. The Section 122 grants the President the authority to impose 15% tariffs for up to 150 days to address balance-of-payments issues or to protect dollar stability. It has never been used but the President needs only to issue a formal proclamation in the Federal Register before imposition, no investigation is needed. Trump could probably renew those tariffs after 150 day. The Section 338 grants the President the authority to impose tariffs of up to 50%, effective immediately, to retaliate against countries that discriminate against US goods by imposing duties on specific product categories. Also, Section 301 was used during the first trade war with China but this requires investigations on a country basis and thus would significantly delay tariff implementation. Lastly, Section 232 sectoral tariffs are not under legal dispute, and Trump can continue using this authority.

CPI

The next CPI release is expected on Tuesday. So far, the inflationary impact from tariffs is not yet visible, and there is considerable debate as to whether this is due to a lagging transmission or because tariffs are simply less inflationary than many anticipate. Several factors could explain this, including delays in price pass-through, firms drawing down existing inventories, challenges in how CPI captures these changes, and the ability of companies to absorb higher costs rather than passing them on to consumers. Analysts expect a +0.34% m-o-m increase in seasonally adjusted gas prices and solid food inflation to boost the headline CPI (vs. +0.08% in May) slightly above that of core (+0.32% vs. +0.13%) which would increase the year-over-year growth rate to 2.6% and 2.9%, and the three- and six-month annualized rates by 1.1 percentage points (to 2.8%) and three-tenths (to 2.9%), respectively. Wednesday’s PPI data will also be important for the categories that feed through into core PCE, the Fed’s preferred inflation gauge.

Fedspeak

Last week, St. Louis Fed President Musalem said that it would “take time for the tariffs to settle” and that there was a scenario where they were still working through in the first half of 2026. Fed Governor Waller spoke about the need for the Fed to reduce its bank reserves and again proffered that the Fed should cut the policy rate this month, though he noted that he was in the minority on this. On the balance sheet, Waller mentioned that the central bank should reduce reserves to near $2.7tr from the current $3.26tr and consider shifting the composition of the balance sheet toward T-bills. Later, Federal Reserve Bank of San Francisco President Daly struck a dovish tone herself, saying she expected two rate cuts this year. She also noted that consumer prices have not been as affected by tariffs as companies are absorbing the price hikes in their margins. Otherwise, there were also fresh calls from President Trump for lower rates, as he posted about several positive metrics, and said that “FED SHOULD RAPIDLY LOWER RATE TO REFLECT THIS STRENGTH”.

FOMC minutes

Fed minutes from the June meeting indicated a divide about how restrictive policy currently was, as well as the tariff impact on inflation going forward. With regards to the current policy stance, it said “A couple of participants noted that, if the data evolve in line with their expectations, they would be open to considering a reduction in the target range for the policy rate as soon as at the next meeting.” So given recent commentary these could likely be Fed Governors Waller and Bowman. However, the minutes also highlighted that “some participants saw the most likely appropriate path of monetary policy as involving no reductions in the target range for the federal funds rate this year.” Regardless, it said “several participants commented that the current target range for the federal funds rate may not be far above its neutral level”, indicating that any easing cycle may not lower rates significantly in the coming months. This growing divergence in expectations matches the dot plot distribution from last month, where 10 of 19 officials penciled in at least two rate cuts this year while 7 officials saw no cuts, and the other 2 policymakers saw one cut. On inflation, the difference of opinion was mainly on the effect of tariffs, even as there were questions on how inflation ex-tariffs was progressing. It said “some participants observed that services price inflation had moved down recently, while goods price inflation had risen. A few participants noted that there had been limited progress recently in reducing core inflation.” Potentially the key sticking point going forward is that “while a few participants noted that tariffs would lead to a one-time increase in prices and would not affect longer-term inflation expectations, most participants noted the risk that tariffs could have more persistent effects on inflation, and some highlighted the fact that such persistence could also affect inflation expectations.” Looking ahead, the next FOMC meeting (July 29-30) will be just before the August 1st extension date for the “reciprocal” tariffs, so policymakers may still be awaiting clarity on what the trade levies going forward could look like even as they try and measure the impact from the tariffs already in place.

US data

Weekly initial jobless claims fell for a 4th consecutive week. That series had generated growing concern, as it’s a high-frequency indicator we get in near real time, and in mid-June the 4-week moving average had risen to its highest since August 2023. So that fed into the speculation about a July rate cut, particularly with inflation also staying subdued. But recent weeks have seen a notable improvement, with claims down to 227k in the week ending July 5 (vs. 235k expected). So coupled with the resilience in last week’s jobs report, where payrolls were stronger than expected, that’s helped to ease fears about how the US economy rounded out Q2.

China data

Chinese exports regained some momentum in June while imports rebounded, as exporters rushed out shipments to capitalize on a fragile tariff truce between Beijing and Washington ahead of a looming August deadline. Exports rose +5.8% y-o-y in June (vs. +4.8% in May), beating the market forecast for +5.0% growth. Imports rebounded +1.1% y-o-y, following a -3.4% decline in May. Markets were expecting a +0.3% rise. Also, June CPI came up relatively low though up 20bps to +0.1% y-o-y, boosted by higher vegetable prices. Underlying inflation measures has been lower than official core, and still same in June at -0.1%. Service inflation, which is correlated with demand recovery, has been low in recent months with 3m/3m rate for June at +0.2% annualized. PPI deflation widened in June, primarily driven by metal, coal and cement, on still weak housing investment, tariff hit on demand of export-oriented sectors, and substitute of coal by green energy.

Highlights

On rates

Sovereign bonds struggled last week. In the US, yields rose as concerns mounted about the fiscal situation. The 10yr yield was up +6.4bps to 4.41%, whilst the longer 30yr yield ended the week at 4.95%, up +8.8bps. The selloff was also supported by mounting political pressure on the Fed as well as better-than-expected US data leading to investors to dial back the likelihood of rapid rate cuts this year. Similarly, European government bonds reached multi-year highs. German 10yr bunds reached their highest level since March with yields rising +11.7bps to 2.72%. At 3.22%, the 30yr bund yield reached its highest closing level since 2011 during the Euro crisis. Yields also saw big moves in France, as the country announced plans to boost defense spending. The 30yr yield rose +14.7bps over the week, reaching a post-2011 high of 4.20%.

Earnings

The Q2 earnings is right around the corner with major US banks posting their results tomorrow. JPMorgan, Wells Fargo and Citi will be the first to report tomorrow, while Bank of America, Morgan Stanley and Goldman Sachs will follow on Wednesday. Blackrock, American Express and Charles Schwab will also be among financials reporting this week. Outside of financials, major releases this week include Johnson & Johnson, Netflix, General Electric and PepsiCo. Outside the US, major releases include ASML on Wednesday and TSMC on Thursday. Notable names also include Novartis, Volvo, Sandvik and Saab.

What to watch

• Monday: Singapore Q2 GDP; China Exports
• Tuesday: China Q2 GDP and June Macro; Germany ZEW Survey; US CPI, Empire Manufacturing; Canada CPI; JPMorgan/Wells Fargo/Citigroup Results
• Wednesday: UK CPI; US PPI and Fed Beige Book
• Thursday: Japan and Singapore Exports; Australia Employment; UK Employment; US Retail Sales, Initial Jobless Claims
• Friday: Japan CPI; US University of Michigan Consumer Survey