2025 Weekly Update

Market update

The S&P 500 closed the week at 6,238.01, -2.36% lower. The Dow Jones closed at 43,588.58, -2.92%, with the Nasdaq lower by -2.17%. The volatility index VIX closed the week at 20.38, up from 14.93. The Euro Stoxx 600 fell -2.57%. 

The 10-year UST closed at 4.22%, down from 4.39% a week before. The yield curve is inverted with the yield spread between the 3-month and 10-year UST at -8bps. US Corporate Bond spreads: Investment Grade spreads narrowed -3bps at 77bps and High Yield spreads widened +2bps at 331bps. German 10-year Bunds yield closed at 2.68% down from 2.72% a week before. In Europe, Corporate Investment Grade spreads narrowed -3bps at 89bps, and High Yield narrowed -12bps at 297bps. 

The US Dollar Index (DXY) appreciated +1.53% last week and closed at 99.14. The Euro closed at 1.1587 (-1.32%); the Yen appreciated +0.20%, closing at 147.4 and the Swiss Franc depreciated -1.08%, closing at 0.804. Gold closed at $3,363.48, appreciating +0.78%. Oil was higher, Brent closed at $69.67 (+1.80%) and WTI at $67.33 (+3.33%).

Macroeconomy

Federal Open Market Committee

Last Wednesday, the FOMC kept interest rates unchanged in the 4.00-4.25% range, with a 9-2 vote against a rate cut. It was a divided decision with dissent from Christopher Waller and Michelle Bowman who called for a 25bps cut. It is worth noting that both Waller and Bowman were appointed during Trump’s first term. While Powell’s comments were hawkish in aggregate, the press conference did contain some dovish elements. Notably, the Fed chair stated that a “reasonable base case” is for tariffs to only provide a temporary boost to inflation and acknowledged downside risks to the employment outlook. After the meeting, Governor Adrianna Kugler's unexpected resignation on Friday opened a path for President Trump to nominate new members to the Federal Reserve's rate-setting committee. This individual could potentially be groomed as a successor to Chair Powell or, at the very least, represent another dovish voter.

Labor market

The Non-Farm Payroll figure for July came in significantly below expectations, reporting 73,000 jobs vs. a forecast of 104,000. The prior two months’ totals were also revised downwards by 258,000, leaving the three-month average payroll growth at just 35,000—down from around 123,000 from January through April. The revisions were partly attributed to a declining initial response rate to the survey which has made early releases less reliable. After the weak job reports, President Trump dismissed the head of the Bureau of Labor Statistics, accusing her of political bias. Atlanta Fed president Bostic also expressed concern about the slowdown in the employment data. However, he stated that it would not have impacted his decision to keep rates unchanged and said he is not yet prepared to revise his projections for near-term rate cuts. On top of the payrolls data, the unemployment rate came in line with expectations at 4.2% while average hourly earnings growth rose at 3.9%.

Economic data

Outside of the labor market, additional economic data in the US showed a contractionary ISM manufacturing index reading at 48. The University of Michigan survey reported consumer sentiment reading at 61.7, and inflation expectations of 4.5% for the short term (1-year) and 3.4% for the longer term (5–10 years). Elsewhere, Flash CPI for the Eurozone showed a y-o-y rise in headline (at +2.0%) and core (at +2.3%) for July, unchanged from June.

Other central banks

The Bank of Canada kept rates on hold at 2.75% amid ongoing inflationary pressures. The door for more rate cuts this year was left open “if a weakening economy puts further downward pressure on inflation”. BoC pricing was little changed after the meeting, with less than one cut priced in by year-end. In Japan, the BoJ kept its policy rate at 0.5%, as widely expected. The central bank made hawkish revisions to its inflation and growth outlook. For the current fiscal year, the BoJ revised up its inflation forecast from 2.2% to 2.7%. It also made slight upgrades for 2025 growth and for 2026 and 2027 inflation with these adjustments suggesting that the next BoJ rate hike could be coming closer into view after four on-hold decisions in a row. Elsewhere in Asia, the Monetary Authority of Singapore also kept its monetary policy unchanged after easing twice earlier in 2025.

Tariffs

With the 1 August tariff deadline looming, last week saw a flurry of announcements involving major US trading partners. The EU agreed to a 15% tariff on most goods and pledged $750bn in energy imports and $600bn in US investments. Although Von der Leyen called it a “good deal”, other European leaders weren’t as upbeat. Amongst others, Spanish PM Sanchez said he backed the trade deal with the US but "without any enthusiasm", while French PM Bayrou called it an act of submission. South Korea also announced investments in the US, committing $350bn to an investment fund, including $150bn for shipbuilding. Meanwhile, other countries faced steeper tariffs: India at 25%, Switzerland at 39%, Taiwan at 20%, and Canada’s tariffs rising from 25% to 35%. Mexico received a 90-day extension, maintaining its current tariff rate of 25%. Looking ahead, the new 7 August trade deadline looms, with several new deals expected to be negotiated. However, goods transshipped to evade levy charges may face an additional 40% surcharge.

Highlights

On rates

Sovereign bonds outperformed on both sides of the Atlantic. In the US, Treasury yields fell across the board after the weak payroll data was released. On Friday, 2yr Treasuries dropped by 27.5bps while the yield on 10yr Treasuries fell 15.8bps, the largest one day fall in US 10yr yields since August 2 last year. That meant the 2yr Treasury ended the week at 3.7%, 24.2bps lower, while the 10yr retreaded 15.8bps to 4.22%. The longer 30yr Treasury yield closed the week at 4.8%. Fed expectations shifted aggressively in a dovish direction, with the market pricing in 63bps of incremental cuts this year, up from 45bps a week before. The weaker jobs data also meant the probability of a rate cut in September surged to 87% on Friday, up from around 40% before data was released. Over in Europe, German Bunds ended the week -3.9bps lower, while French OATs dropped -3.8bps, and Italian BTPs declined 4.0bps.

Earnings

So far, 66% of S&P 500 companies have reported their Q2 results, with 82% delivering positive earnings surprise. Companies are beating EPS estimates by an average of 8.2% and sales expectations by an average of 2.5%. Last week, positive EPS surprises reported by four of the “Magnificent 7” were the largest contributors to the increase in the overall earnings growth rate for the S&P 500 over this period. While Amazon reported weaker cloud growth than peers and projected weaker-than-expected Q3 operating profits, Meta and Microsoft posted blow-out earnings, with sales and earnings far ahead of expectations. This week, notable reports are expected from Eli Lilly, Palantir, and AMD. Other S&P 500 names reporting include McDonald’s, Walt Disney, and Uber. In Europe, attention will be on Novo Nordisk, Siemens, and Rheinmetall, while in Japan, Toyota and Sony are set to report.

What to watch

• Monday: US Durable Goods Orders; Switzerland CPI
• Tuesday: US ISM; Eurozone PPI; Singapore Retail Sales; India Services PMI
• Wednesday: US MBA Mortgage Applications; Eurozone Retail Sales; RBI India Rate Decision; Japan Cash Earnings
• Thursday: US Initial Jobless Claims; Bank of England Rate Decision; Germany Exports and Industrial Production; China Exports
• Friday: Canada Employment and Hourly Wage; Taiwan Exports