2025 Weekly Update

Market update

The S&P 500 closed the week at 6,389.45, +2.43% higher. The Dow Jones closed at 44,175.61, +1.35%, with the Nasdaq higher by +3.87%. The volatility index VIX closed the week at 15.15, down from 20.38. The Euro Stoxx 600 rose +2.11%.

The 10-year UST closed at 4.28%, up from 4.22% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 4bps. US Corporate Bond spreads: Investment Grade spreads widened +4bps at 81bps and High Yield spreads widened +14bps at 345bps. German 10-year Bunds yield closed at +2.69%, up from+2.68% a week before. In Europe, Corporate Investment Grade spreads widened +4bps at 93bps and High Yield widened +2bps at 299bps.

The US Dollar Index (DXY) depreciated -0.97% last week and closed at 98.18. The Euro closed at 1.1641 (+0.47%); the Yen depreciated -0.23%, closing at 147.74 and the Swiss Franc depreciated -0.53%, closing at 0.8083. Gold closed at $3,397.75, appreciating +1.02%. Oil was lower, Brent closed at $66.59 (-4.42%) and WTI at $63.88 (-5.12%).

Macroeconomy

US economy

The ISM indices for the manufacturing and non-manufacturing sectors were weaker-than-expected in July, including employment sub-components in contraction territory. Services paid in the services sector rose to a new cycle high in July, signaling potential upside risks to upcoming CPI releases. Initial Jobless Claims increased by 7k over the week to 226k, surpassing the 222k forecast. Continuing claims reached 1.974 million, the highest since 2011. Looking at trade, the US deficit narrowed significantly in June to USD 60.2bn, marking the third month of normalization following large tariff front-loading in Q1, particularly in pharma. Trade flows continued to shift, with declines in imports from China and increases from other countries, including ASEAN. Elsewhere, several FOMC members have expressed fresh concerns over the pace of labor market slowing. These included Mary Daly, Lisa Cook, and Neel Kashkari. Trump nominated Stephen Miran, Chairman of the Council of Economic Advisers, to temporarily fill Governor Kugler’s seat on the Federal Reserve Board.

Eurozone

Eurozone retail sales came in above forecasts, with a +3.1% y-o-y increase in June, above expectations of 2.6%. Previous month’s figures were revised upwards from 1.8% to 1.9%. Meanwhile, July composite PMI rose to 50.9 from 50.6 in June.

Bank of England

As expected, the BoE cut its policy rate by 25bps to 4.0%. With a narrow 5-4 majority, the outcome was more hawkish than anticipated. As one member initially voted for a 50bps cut, the central Bank had to recast the votes to reach a majority. The committee maintained its "gradual and careful" approach, with Governor Bailey noting that the decision was "finely balanced" and emphasizing that interest rates remain restrictive and on a downward trajectory. However, the minutes now state that the "restrictiveness of monetary policy has fallen" since last year. The MPC also judged that upside risks to medium-term inflation have risen "slightly higher" as it revised its inflation forecast upwards. The MPC now expects inflation to peak at 4.0% y-o-y in September. On QT, BoE staff estimated that its impact on the UK term premia resulted in an increase of 15-25bps in long-term yields. Despite this, the MPC judged the impact to be "modest", though recent speeches from some members suggest a potential reduction in the pace next year due to elevated yields.

Asia

July’s Composite PMI from Asian countries showed expansions in Australia Services (at 53.8), Singapore (at 52.7), Japan (at 51.6) but contraction in HK (at 49.2). Japan’s nominal labor cash earnings rose 2.5% y-o-y in June, falling short of the expected 3.1% increase. It was also far from sufficient to combat CPI rise, which recorded a 2.9% y-o-y jump for headline inflation in Tokyo for July. China’s exports grew 7.2% y-o-y in July, beating the 5.6% forecast and June’s 5.8%. Shipments to the U.S. dropped 21.6% y-o-y, but non-U.S. destinations performed well, including Taiwan (+19.2%), ASEAN (+16.8%), and the EU (+9.3%). In India, the RBI held interest rates at 5.5% and kept its neutral stance. Governor Sanjay Malhotra revised the 2025-2026 inflation projection down from 3.7% to 3.1% while maintaining GDP growth forecast at 6.5%.

Tariffs

Fresh US tariffs took effect on August 7. President Trump announced that imported semiconductors could face tariffs of up to 100%, although exemptions would apply to companies pledging to manufacture domestically. Pharmaceutical tariffs are also set to be introduced, reaching as high as 250% over the next 18 months. More details on these measures are expected in the coming week. Trump also declared that gold bars would be subject to tariffs of up to 39%. Earlier in the week, he had also announced 50% tariffs on India in response to its purchase of Russian oil. 

Highlights

On rates

Sovereign bonds mostly retreated last week. In the US, Treasury yields rose after 3-year, 10-year, and 30-year auctions recorded soft demand. The 10yr UST yield ended the week +6.6bps higher at 4.28%. Fed expectations moved in a hawkish direction, with the market pricing in 58bps of incremental cuts this year, down from 63bps last week. The share of T-Bills is set to increase as the US Treasury Department relies on them to replenish its coffers. After experiencing negative net issuance in June, T-Bills surged to USD 212bn in July. As the Treasury Department plans no changes to coupon auction sizes "for at least the next several quarters", the proportion of T-Bills is likely to rise from 20% to 25% over the coming years. Alongside an anticipated end to the Fed’s quantitative tightening in early 2026, net issuance of T-notes and bonds is expected to decrease, which will in turn alleviate the upward pressure on the US term premium. Over in Europe, better-than-expected economic data prompted markets to scale back expectations for ECB rate cuts. 13bps of easing are currently priced in by year-end, down -2.4bps on the week. German 10-year bund yields ended the week at 2.69%, up +1.1bps. In Switzerland, the 10-year yield retreated to 0.25%, as the increase in US tariffs (to 39%) is expected to negatively impact economic growth. Nevertheless, market expectations for a rate cut by the SNB in September are limited to just 5bps.

Earnings

With over 80% of S&P 500 companies having reported, the US earnings season is slowly coming to an end. A significant number of companies have reported top and bottom-line figures exceeding forecasts. If this trend persists, Q2 will mark the highest rate of companies surpassing EPS and sales expectations since 2021. A weaker dollar and a significant number of analyst downgrades for the second quarter have helped companies exceed expectations. Frontloading of imports in anticipation of Trump’s tariffs may also have contributed to this strong performance. Earnings results have been robust in most sectors, led by Consumer Staples, Technology, and Financials. The Materials sector underperformed, with fewer than 50% of companies reporting positive surprises. Strong results in most sectors have prompted upward revisions of EPS estimates over the last month, while the Healthcare sector has faced significant downgrades due to ongoing tariff uncertainties. At the index level, EPS growth has rebounded to 10.3%, and sales growth has returned to levels seen earlier in the year. Despite potential tariff impacts, guidance for the upcoming quarter remains highly optimistic, particularly within the Technology sector. In Europe, the percentage of companies reporting EPS above estimates is around the 15-year average; however, sales performance remains weak with fewer than 40% of companies exceeding expectations. The appreciation of the euro against the dollar has been a primary drag. The Financials sector leads in EPS beats, while the Materials and Utilities sectors lag; all sectors except Financials have experienced EPS downgrades over the past month. Earnings growth for the STOXX Europe 600 is coming in around 2%, while sales growth remains below 1%.

What to watch

• Monday: Korea Exports
• Tuesday: US CPI; NFIB Small Business Optimism; Germany ZEW Survey; UK Weekly Earnings and Employment; RBA Rate Decision
• Wednesday: US MBA Mortgage Applications; Japan PPI; India Exports
• Thursday: US PPI and Initial Jobless Claims; UK Q2 GDP; Australia Employment
• Friday: US Retail Sales, University of Michigan Survey; Japan Q2 GDP; Retail Sales and Industrial Production; Taiwan Q2 GDP