United States
Confidence Climbs on Trade Progress and Earnings Resilience
Wall Street delivered another positive week as investor optimism was buoyed by fresh international trade progress and largely upbeat corporate earnings. The Nasdaq and S&P 500 pushed to new highs for the second week in a row, while the Dow rose 1.26%. Mid-cap and small-cap indices also ended higher, with value stocks edging ahead of growth.
Much of the bullishness stemmed from diplomatic breakthroughs. The U.S. finalized trade pacts with Japan, Indonesia, and the Philippines. Additionally, market participants cheered reports that EU-U.S. negotiations were nearing a deal ahead of a looming tariff deadline.
Earnings season featured tech heavyweights. Alphabet posted robust earnings and emphasized AI development, lifting sentiment among related stocks. Tesla, by contrast, fell after delivering disappointing results. Market reaction to earnings has remained sensitive, particularly with growth-heavy stocks that carry high valuations.
Economic Activity Supported by Services
Business activity expanded in July, according to S&P Global’s flash PMI readings. The composite index hit 54.6, its strongest pace in seven months. Growth was concentrated in services, which climbed to 55.2, while manufacturing contracted to 49.5, reflecting renewed industrial softness.
The divergence raises questions about the sustainability of U.S. growth, especially as factories contend with tighter credit conditions, slower global demand, and the winding down of earlier inventory build-ups. The weakness in goods-producing sectors is a red flag for longer-term economic stability if services momentum falters.
Housing Stalls Amid Rate Pressures
Data from the National Association of Realtors showed June’s existing home sales slid 2.7% to an annual pace of 3.93 million. Despite subdued volume, the median home price hit a record USD 435,300—underscoring ongoing affordability constraints due to high mortgage rates and low housing supply.
First-time homebuyers remain sidelined, while existing homeowners, locked into low-rate mortgages, are hesitant to sell—further tightening inventory. Industry experts caution that unless rates moderate, the housing sector may remain a drag on broader consumption and construction activity.
Bond Market Activity and Loan Surge
Treasury yields moved slightly lower over the week, driven by dovish Fed commentary and subdued inflation expectations. Investment-grade corporate bonds outshined government debt as spreads narrowed. Fund flows into high-quality bonds reflected growing interest in credit strategies amid yield stability.
Meanwhile, the bank loan space witnessed a record-setting issuance session early in the week, with Monday marking the fourth-largest origination volume ever, driven largely by repricing activity. Syndicated loan markets were notably active across financials, energy, and technology.
U.S. Index Summary
| Index | Friday’s Close | Weekly Change | YTD Change |
|---|---|---|---|
| DJIA | 44,901.92 | +559.73 | +5.54% |
| S&P 500 | 6,388.64 | +91.85 | +8.62% |
| Nasdaq Composite | 21,108.32 | +212.66 | +9.31% |
| S&P MidCap 400 | 3,218.31 | +46.76 | +3.12% |
| Russell 2000 | 2,261.07 | +21.06 | +1.39% |
Source: Reuters, Bloomberg, Yahoo! Finance. Data as of market close Friday.
Europe
Trade Optimism and Central Bank Signals Lift Sentiment
The STOXX Europe 600 posted a 0.54% gain, driven by hopes of a resolution to the EU-U.S. tariff standoff. Italy and the UK outperformed, while Germany’s DAX slipped modestly.
ECB Holds Rates, Leans Cautious
The European Central Bank held its deposit rate steady at 2% during its July meeting. Although inflation sits at target, officials noted global risks. ECB President Christine Lagarde reinforced the data-dependent approach and avoided promising additional cuts.
Lagarde emphasized that lingering trade disputes, energy volatility, and uncertain wage dynamics require flexibility. The ECB’s stance was perceived as slightly hawkish, particularly in light of recent strength in core inflation and services-sector resilience.
Composite PMI data rose to 51.0, driven by modest improvement in both services and manufacturing. Business confidence diverged, strengthening in Germany but weakening in France. Economists noted that peripheral economies like Spain and Italy may outperform if EU stimulus packages continue to gain traction.
United Kingdom
Mild Recovery in Retail, But Labor Market Softens
UK retail rebounded 0.9% in June but missed forecasts. PMI figures showed marginal slowdown in services, with a fall in employment metrics signaling a possible shift in labor demand. The British pound strengthened modestly against the U.S. dollar as investors rebalanced expectations for further monetary tightening.
Labor indicators have begun to soften, with payroll growth decelerating and business investment plans showing renewed caution. Political uncertainty and sluggish wage growth may further constrain household spending in the coming months.
Japan
Trade Deal Sparks Rally, Rate Hike Odds Rise
Japanese equities posted sharp gains, with the Nikkei and TOPIX each surging 4.1% after Japan secured a trade agreement with the U.S. The deal capped tariffs at 15%—well below the earlier threat of 25%—and included major bilateral investments.
Inflation Still Above Target
Tokyo’s core CPI grew 2.9% annually in July, slightly below consensus and down from 3.1% in June. Nonetheless, price growth remains elevated, prompting speculation of further tightening by the Bank of Japan.
BoJ officials face a tricky balance: while core inflation remains sticky, growth prospects remain fragile amid global deceleration and currency volatility. The yen weakened further during the week, approaching multi-month lows against the dollar.
Service activity expanded, while manufacturing saw contraction—though this may reverse post-trade deal. The 10-year bond yield climbed amid uncertainty following the ruling coalition’s election loss and leadership rumors. Investors remain focused on political continuity and fiscal direction.
China
Tariff Truce Hopes Fuel Rebound
Mainland indices rose as investors responded positively to U.S.-China trade talks scheduled in Stockholm. The CSI 300 added 1.69%, and the Shanghai Composite climbed 1.67%. The Hang Seng Index also gained over 2%.
The Stockholm summit follows earlier discussions in Geneva and London, where temporary tariff suspensions were secured. Markets interpreted the renewed engagement as a sign of thawing bilateral tensions.
Despite trade optimism, China’s economic data remains mixed. Property market indicators remain weak, with continued declines in home prices and sluggish construction activity. The central government has yet to unveil large-scale fiscal support, and local governments remain burdened by debt constraints.
Investors are increasingly looking to the People’s Bank of China for further rate adjustments and liquidity support. Market participants also anticipate more coordinated stimulus if Q3 data signals continued slowdown.
Emerging Markets: Central Bank Shifts Highlight Policy Caution
Hungary
Hungarian policymakers maintained rates at 6.50%, emphasizing global and domestic uncertainties. Inflation ticked higher to 4.6%, though core figures eased slightly. The central bank anticipates that supportive wage and tax conditions, along with EU stimulus, could aid growth recovery in 2025.
Officials also acknowledged that the economy showed limited momentum in Q2, and structural challenges remain. Energy price inflation and food volatility are major contributors to headline figures. Hungary’s forint remained stable after the rate decision.
Türkiye
The Turkish central bank cut its policy rate by 300 basis points to 43.0%, citing improving inflation trends. Despite the cut, officials maintained a hawkish tone, pledging to uphold a firm stance until price stability is secured.
Forward guidance suggested further adjustments could be paused if inflation expectations deteriorate. Market reaction was subdued, though Turkish equities and government bonds saw moderate inflows from yield-seeking investors.
