2025 Weekly Update

Market update

The S&P 500 closed the week at 6,449.8, +0.94% higher. The Dow Jones closed at 44,946.12, +1.74%, with the Nasdaq higher by +0.81%. The volatility index VIX closed the week at 15.09, down from 15.15. The Euro Stoxx 600 rose +1.18%. 

The 10-year UST closed at 4.32%, up from 4.28% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 9bps. US Corporate Bond spreads: Investment Grade spreads narrowed -3bps at 78bps and High Yield spreads narrowed -5bps at 340bps. German 10-year Bunds yield closed at 2.79% up from 2.69% a week before. In Europe, Corporate Investment Grade spreads narrowed -4bps at 89bps and High Yield narrowed -11bps at 288bps.

The US Dollar Index (DXY) depreciated -0.33% last week and closed at 97.85. The Euro closed at 1.1703 (+0.53%); the Yen appreciated +0.37%, closing at 147.19 and the Swiss Franc appreciated +0.19%, closing at 0.8068. Gold closed at $3,336.19, depreciating -1.81%. Oil was lower, Brent closed at $65.85 (-1.11%) and WTI at $62.8 (-1.69%).

Macroeconomy

US prices

July headline CPI came in at +0.20% m-o-m, which kept the y-o-y rate at +2.7% (vs. +2.8% expected). But although the headline number looked fine, the headline measure was being dragged down by gasoline prices, which fell by a monthly -2.17%. The core CPI measure (which excludes food and energy) was up by a stronger +0.32%, which pushed the y-o-y rate up to +3.1% (vs. +3.0% expected). So that was a bit more concerning, and the stickier category of core services was running at +0.36%. In terms of tariff impact, household appliances fell -0.9% in July after surging +1.9% in June. Similarly, toys had surged by +1.3% in May and +1.8% in June, before only rising by +0.2% in July. However, the effective tariff rate has fluctuated significantly in recent months. After the initial 10% baseline imposed in April, we had a big tariff reduction in May after the levies on China came down by 115%. In the last couple of weeks, we’ve then had fresh tariffs imposed like 15% on the EU, 35% on Canada, and 50% on copper. So, when it comes to the impact on inflation, it may be some time before we get a clear signal, as several tariffs were imposed as recently as August 7, whilst there are potentially more in the pipeline like pharmaceuticals and semiconductors. Regarding producer prices, Headline PPI rose by +0.9% m-o-m (vs. +0.2% expected), pushing the y-o-y figure to +3.3% (vs. +2.5% expected). Core PPI, also surprised to the upside at +0.6% for the month (vs. +0.2% expected), lifting the annual rate to +2.8% (vs. +2.5% expected).

Consumer data

July retail sales fell a bit short on the headline at +0.5% m-o-m (vs. consensus at +0.6%), but there was a fairly large upward revision to June (from +0.6% m-o-m to +0.9%). The core number in July (ex-food and gas) was +0.2% m-o-m (vs. consensus at +0.3%) while June was revised higher (from +0.6% m-o-m to +0.8%). The Control Group in July came in ahead of plan (+0.5% m-o-m vs. +0.4%), and this is after an upward revision to June (from +0.5% m-o-m to +0.8%). The University of Michigan’s August consumer sentiment index fell to 58.6 (vs. 62 expected), while inflation expectations rose - 1-year at 4.9% (vs. 4.4% estimate) and 5–10 years at 3.9% (vs. 3.4% estimate).

Fedspeak

Treasury Secretary Bessent called for more aggressive rate cuts. He said in a Bloomberg interview that “I think we could go into a series of rate cuts here, starting with a 50bps rate cut in September”. And more generally, he said that “we should probably be 150, 175bps lower”. Bessent argued that if the negative revisions to payrolls had been known beforehand, then “I suspect we could have had rate cuts in June and July”. Later, President Trump said: “I believe we should be 3 or 4 points lower”. But even as the administration were calling for faster cuts, Fed officials were still sounding cautious. Chicago Fed President Goolsbee (a voter this year) said that the labor market was “strong”, and he referred to the rise in services inflation in this week’s CPI print, saying that “I want some more surety that that’s not going to be a persistent inflation shock.” Meanwhile, Atlanta Fed President Bostic said that “I still have one cut on my outlook” for this year, which is more hawkish than current market pricing, which expects 2 to 3 cuts by the December meeting.

Jackson Hole

The Fed’s symposium at Jackson Hole will be held this week. The Fed Chair’s speech has often been used to send important policy signals, and it was last year that Powell said the “time has come for policy to adjust”, before they then cut rates at the next meeting for the first time since the pandemic. This year speech is titled “Economic Outlook and Framework Review”. The last time the Fed had a review in 2020, that resulted in a shift towards average inflation targeting. They said that after periods when inflation had been persistently beneath 2% (like the 2010s), then monetary policy could seek to reach inflation a bit above 2% to counteract that. The Fed also reinterpreted their approach to full employment, in that a tight labor market alone wasn’t a reason to raise rates. That implied a move away from the pre-emptive approach whereby the Fed would tighten policy to get ahead of future inflation as the labor market tightened.

Asia data

In Japan, q-o-q GDP grew by +1.0% (vs. +0.3% expected). We saw some moves in JPY following comments by US Treasury Secretary Bessent. He said in a Bloomberg interview that the Bank of Japan were “behind the curve” and that “they are going to be hiking and they need to get their inflation problem under control”. In China, July data releases disappointed across key indicators, highlighting economic headwinds from ongoing trade tensions and marking a challenging start to the second half of the year. Growth in July’s retail sales was +3.7% y-o-y (vs. +4.6% estimate), and industrial production grew by +5.7% y-o-y (vs. +6.0% estimate), both missing expectations. New home prices and fixed asset investment also missed on the downside. Taiwan economy grew 8.01% year-on-year in Q2, the highest growth since Q2 2021. Government revised up full 2025 GDP growth from +3.1% previously to +4.45%.

Highlights

On rates

In the US, the yield curve steepened as inflation data came in hotter than expected, pushing inflation expectations higher. The 2yr Treasury yield retreated -1.2bps to 3.75%, while the 10yr yield rose +3.3bps to 4.32%, and the 30yr yield increased +6.9bps to 4.92%. Fed expectations moved in a hawkish direction, with the market placing 84% odds on a September rate cut, down from ~100% before the PPI data. Futures markets are pricing 54bps worth of cuts for the year, vs. 58bps a week before. Government bonds also struggled in Europe. The yield on 10yr bunds rose +9.9bps to 2.79%. The 30yr bund yield posted its biggest weekly jump since March, rising +14.3bps to 3.35% - its highest level since 2011, indicating that fiscal concerns remain. BTP-Bund spreads have tightened, closing at 78bps. The government’s commitment to fiscal discipline and political stability have been a positive. France, on the other hand, has seen its spreads widen as the current government is unlikely to secure the necessary votes to consolidate public finances.

Earnings

The Q2 earnings season is ending, with over 90% of S&P 500 companies having reported their results. This season has produced stronger-than-usual beats, with EPS growth coming in at +12% y-o-y, representing an EPS surprise factor of +8%. Earnings delivery in Europe continues to lag the US, with EPS growth of -1% y-o-y despite a positive surprise of +3%. At the sector level, Energy and Materials have weighed on overall earnings growth in both the US and Europe. Excluding the Energy sector, EPS growth rose +14% y-o-y in the US and +3% in Europe. Meanwhile, Communication Services, Financials, and Technology are driving the majority of strong earnings growth in the US. Notably, the gap between the Mag-7 and the rest of the S&P 500 has narrowed, with S&P 500 ex Mag-7 delivering its best EPS growth in years, at +9% y-o-y. This week’s highlights include several key US retailers, such as Walmart and Target, which should provide fresh insights into consumer spending trends.

What to watch

• Monday: US August New York Fed services business activity; NAHB housing market index; Eurozone June trade balance
• Tuesday: US July Building permits; Canada July CPI; ECB June current account
• Wednesday: FOMC meeting minutes; UK July CPI; China 1-yr and 5-yr loan prime rates; Japan July trade balance; Germany July PPI
• Thursday: Jackson Hole; US, UK, Japan, Germany, France, Eurozone Aug. PMIs; US Jobless Claims; Eurozone Aug. cons. confidence
• Friday: US July retail sales; Canada June retail sales; UK August GfK consumer confidence; Japan July national CPI