2025 Weekly Update

Market update

The S&P 500 closed the week at 6,296.79, +0.59% higher. The Dow Jones closed at 44,342.19, -0.07%, with the Nasdaq higher by +1.51%. The volatility index VIX closed the week at 16.41, up from 16.40. The Euro Stoxx 600 fell -0.06%.

The 10-year UST closed at 4.42%, up from 4.41% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 7bps. US Corporate Bond spreads: Investment Grade spreads narrowed -3bps at 81bps and High Yield spreads remained at 337bps. German 10-year Bunds yield closed at 2.69% down from 2.72% a week before. In Europe, Corporate Investment Grade spreads narrowed -2bps at 95bps and High Yield narrowed -5bps at 321bps.

The US Dollar Index (DXY) appreciated +0.64% last week and closed at 98.48. The Euro closed at 1.1626 (-0.54%); the Yen depreciated -0.94%, closing at 148.81 and the Swiss Franc depreciated -0.59%, closing at 0.8013. Gold closed at $3,349.94, depreciating -0.17%. Oil was lower, Brent closed at $69.28 (-1.53%) and WTI at $67.34 (-1.62%).

Macroeconomy

Japan election

Overnight, the ruling coalition has lost their majority in the upper house. Out of 125 seats up for grab, the LDP won 47 but needed 50 to maintain a majority in the 248-seat chamber. This is better than expected and Prime Minister Shigeru Ishiba (from the LDP ruling coalition) has vowed to stay on but history suggests this will be a challenge even if they still comfortably have the largest number of seats. In a trend reminiscent of many other countries’ mainstream parties, the long dominant LDP party has been losing support relative to populists and others. This is the first time they’ve been in power with a minority government in both houses since the party was formed in 1955 and they've been in government for around 64 of those 70 years.

US prices

June monthly CPI came in at +0.29% m-o-m (vs. +0.3% expected), which was a 5-month high but broadly in line with expectations. The core CPI measure was a comparatively softer +0.23% (vs. +0.3% expected), which eased fears that this month would see a big jump due to tariffs. However, there were some concerning signs under the surface, and household appliances (+1.9%) saw their biggest monthly price jump in records back to 1999. And core goods (excluding used cars and trucks) there was a decent +0.32% monthly gain that was the strongest since February 2023. Some analysts are concerned that as the tariff impact is more fully felt (with plenty more in the pipeline), those increases could become more widespread across the consumer basket. Indeed, those concerns were clear in market pricing with the 2yr US inflation swap (+2.0bps) moved up to a fresh two-year high of 2.97%. On the producers side, June PPI was softer than expected. Headline producer prices were unchanged m-o-m in June (vs. +0.2% expected), which meant the y-o-y rate fell back to a 9-month low of +2.3% (vs. +2.5% expected). Core PPI was also subdued, and came in unchanged on the month as well (vs +0.2% expected).

Next Fed meeting

The Fed is expected to meet next week, on July 30. Fed Governor Waller, regarded as a potential candidate to succeed Chair Powell, has expressed his preference for a 25bps reduction at the forthcoming meeting, citing escalating risks to the economy and the strong possibility that tariff-induced inflation will not lead to a sustained increase in price pressures. Waller cautioned that he has observed signs of strain in the labor market, reinforcing the argument for lower interest rates. He'll likely largely be on his own for July which is why there's only been a couple of basis point change in December pricing on the back of his declarations.

Tariffs

President Trump threatened to impose 100% “secondary tariffs” if a ceasefire deal with Ukraine isn’t reached in 50 days. Trump’s announcement was vague on details, with Commerce Secretary Lutnick referring to both “tariffs” and “secondary sanctions”. Reporting later appeared to confirm that this would include tariffs against buyers of Russian minerals, similar to a proposed sanctions bill in the Senate that is now set to be paused. This could impact the likes of China and India, which account for most of Russia’s oil exports, though there are doubts over how practical such secondary tariffs would be to implement. Trump’s comments came during his meeting with NATO Secretary General Rutte, at which he also announced that the US will send additional Patriot air-defense systems to Ukraine that will be paid for by Europe. Trump also made some brief remarks on trade, saying that he is “always open to talk”, including with the EU, even as he insisted the recent US letters to trading partners “are the deals" and "there are no deals to make". That left plenty of ambiguity as markets continued to digest the 30% tariff threats made to the EU and Mexico over the weekend. According to AFP, the European Commission said it would propose a new list of US goods worth €72bn that could be subject to EU tariffs should talks between Washington and Brussels fail. Lastly, Trump announced a deal with Indonesia. This will see goods from Indonesia facing US tariffs of 19%, above the 10% interim tariff over the past three months but clearly below the 32% the country faced under the initial Liberation Day tariffs on April 2. Trump later posted that Indonesia also agreed to buy $15bn in US energy, $4.5bn of agricultural products and 50 Boeing jets. Trump also added that “Transshipment from a higher Tariff Country” via Indonesia would face additional tariffs.

US data

US headline retail sales rose +0.6% in June (vs. +0.1% expected), bouncing back after the previous two months of declines, while retail control grew +0.5% (+0.3% expected). Meanwhile, initial jobless claims fell to a three-month low of 221k in the week ending July 12 (vs. 233k expected). In turn, that took the 4-week average for claims down to a two-month low of 229.5k, which added to the sense that this was a durable trend.

UK CPI

UK CPI print was notably higher than expected, which led to an underperformance for UK gilts. The release showed headline CPI moving up to +3.6% in June (vs. +3.4% expected), whilst core CPI also rose to +3.7% (vs. +3.5% expected). So that was the fastest headline CPI print since January 2024, and it led investors to dial back the likelihood of rapid rate cuts from the Bank of England. For instance, the number of cuts priced in by the November meeting came down -3.1bps on the day to 43bps. And it meant yields on 10yr gilts rose +1.5bps, in contrast to the declines elsewhere in Europe.

Japan data

Japanese core CPI increased by +3.3% y-o-y in June (compared to +3.4% anticipated). This rise was less than the +3.7% increase in May, primarily due to the resumption of gasoline subsidies. Core-core CPI excluding fresh food and energy was up by 3.4% (from 3.3%) and a tenth above expectations. The core CPI actually rose by 3.344%, just 0.006% short of consensus. 

China data

Chinese GDP increased by +5.2% in the second quarter, outperforming Bloomberg's estimates of +5.1%, although this marks a deceleration from the +5.4% growth recorded in the first quarter. Most of the growth bias is export led over domestic, which was backed up by retail sales growth decelerating to 4.8% y-o-y in June (vs. +5.3% expected), down from a 6.4% YoY increase in May. Industrial output rose by +6.8% y-o-y though, exceeding market expectations of 5.6%. Fixed asset investment increased by +2.8% in the first half of this year, falling short of market predictions of a +3.6% rise. Simultaneously, the decline in real estate investment intensified, dropping -11.2% in the first half of the year, compared to a -10.9% decrease in the first five months, while investments in infrastructure and manufacturing also showed signs of slowing.

Highlights

On rates

Last week, saw large intra-day moves on the back of renewed worries about Fed independence and new economic data. Mid-week, pricing of a September cut rose from 57% to 80% as media outlets reported that Trump was on the verge of dismissing Fed Chair Powell although expectations reversed swiftly after Trump denied the claims. At the end of the week, lower Michigan inflation expectations and dovish Waller comments pushed yields lower. Fed expectations moved in a hawkish direction with the market pricing in 45bps of incremental cuts this year, down from 50bps last week. As a result, sovereign yield curves saw a notable steepening on both sides of the Atlantic. The 2yr Treasury yield closed the week at 3.87%, -1.6bps lower, while the 10yr rose +0.7bps to 4.42%. The longer 30yr yield was also up, +3.8bps, and ended the week at 4.99%. Over in Europe, yields on 10yr bunds ended the week -2.9bps lower while 30yr bunds were up +0.6bps to 3.23%. OAT yields reached new highs post-2011, ending the week at 4.22%, +2.1bps higher. The ECB is expected to keep rates unchanged at the July meeting on Thursday. Elsewhere, yields on Japanese Government Bonds rose sharply amid mounting fiscal concerns and the Upper house elections over the weekend. At one point during the week, the 10yr yield reached a post-2008 high of 1.59%, while 30yr JGBs traded at their highest level since 1999.

Earnings

In the US, more than 12% of the companies in the S&P 500 have reported Q2 earnings. Results have been strong with 83% of companies reporting a positive EPS surprise and 83% topping sales estimates. So far, both the percentage of companies reporting positive earnings surprises and the magnitude of earnings surprises are above their 10-year averages. Last week earnings included JPMorgan, Wells Fargo, Blackrock, Bank of America, and Goldman Sachs. Overall, Bank earnings came in strong, with EPS upside across the board, healthy expense management, robust trading revenue, decent loan growth, and solid credit quality. Outside of financials, Pepsi reported impressive upside on EPS, Netflix reported modest upside on key numbers for Q2, and United Airlines reported a few cents of Q2 EPS upside. 135 S&P 500 companies will report this week including Coca Cola, General Motors, Chipotle, Alphabet, and Tesla. In Europe, 189 Stoxx 600 companies will publish their results. These include the region's largest company, SAP, as well as LVMH, Roche and Nestle.

What to watch

• Monday: Korea July Exports; China Loan Prime Rate; New Zealand CPI
• Tuesday: Taiwan Export Orders; Fed Survey on Richmond and Philadelphia
• Wednesday: Taiwan Industrial Production; US Existing Home Sales
• Thursday: Korea GDP; PMI for Japan, India and Australia; ECB Policy Meeting; Eurozone and UK PMI; Germany GfK Consumer Confidence; US Initial Jobless Claims and PMI
• Friday: Japan CPI; UK Retail Sales; Germany IFO; US Durable Goods Orders