United States
Market Reels Amid Trade Escalation and Mixed Data
U.S. equity markets experienced broad-based declines this past week, driven by escalating trade tensions and a string of mixed economic releases. The pullback marked one of the sharpest weekly downturns since early April, particularly affecting small and mid-cap equities. The Russell 2000 and S&P MidCap 400 suffered losses of 4.17% and 3.53% respectively, while the Dow Jones Industrial Average dropped 2.92% and the S&P 500 shed 2.36%. The Nasdaq Composite, bolstered by tech strength, fared slightly better with a 2.17% decline, maintaining its lead in year-to-date performance.
Markets turned volatile after President Trump reaffirmed an August 1 deadline for finalizing new trade deals. The administration intensified its protectionist stance with an executive order imposing new tariffs, effective August 7, on most U.S. trading partners. This broad measure came alongside updates on trade negotiations, including a framework agreement with the EU, a temporary extension with Mexico, and revised terms with South Korea.
Corporate earnings remained a core focus. According to FactSet, 66% of S&P 500 constituents have reported earnings, with 82% exceeding analyst expectations. Blended earnings growth stands at 10.3%, yet guidance has been cautious. Ford notably warned that tariffs could impose a $2 billion cost this year. In contrast, Microsoft and Meta Platforms beat estimates and highlighted AI-driven growth.
The Federal Reserve concluded its July meeting by keeping the federal funds rate unchanged at 4.25%–4.50%, its fifth consecutive hold. Two dissenting governors advocated for an immediate 25-basis-point rate cut, citing weaker economic momentum. While Chair Jerome Powell acknowledged cooling activity, he emphasized that inflation remains above target and affirmed a data-driven approach to policy shifts. This tempered hopes for a near-term rate cut.
Fresh data supported the Fed’s concerns. The core PCE index rose 0.3% in June, accelerating from 0.2% in May. On an annual basis, inflation sits at 2.8%, surpassing the Fed’s 2% benchmark. Simultaneously, GDP rebounded strongly in Q2, registering 3% growth, primarily due to a decline in imports rather than domestic demand strength.
Friday’s July labor report offered additional caution. Only 73,000 jobs were added—well short of the 115,000 consensus. Prior estimates for May and June were revised downward by 258,000 combined, painting a picture of a significantly softer labor market. Unemployment rose to 4.2%. U.S. Treasury yields fell across the curve in response, with the 10-year note dropping to 4.22%.
Index Performance
| Index | Friday’s Close | Week’s Change | % Change YTD |
| DJIA | 43,588.58 | -1,313.34 | 2.45% |
| S&P 500 | 6,238.01 | -150.63 | 6.06% |
| Nasdaq Composite | 20,650.13 | -458.18 | 6.94% |
| S&P MidCap 400 | 3,104.60 | -113.71 | -0.52% |
| Russell 2000 | 2,166.78 | -94.29 | -2.84% |
Eurozone
Modest Resilience, but Headwinds Persist
European equities fell as hopes for a robust U.S.–EU trade accord faded. The STOXX Europe 600 retreated 2.57% for the week, with continental benchmarks suffering sharper declines: France’s CAC 40 lost 3.68%, Germany’s DAX dropped 3.27%, and Italy’s FTSE MIB fell 1.92%.
Investors reacted coolly to the framework trade agreement between the U.S. and EU, which lacked clarity on several key provisions and failed to offset broader concerns about escalating global trade restrictions. Market sentiment was further dampened by weak corporate earnings guidance from industrials and exporters.
Despite the risk-off tone, eurozone macro data showed tentative signs of stability. Headline inflation in July held at 2.0%, marginally exceeding forecasts and aligning with the European Central Bank’s (ECB) medium-term target. Core inflation, which strips out energy, food, and tobacco, remained elevated at 2.3%, suggesting persistent underlying price pressures.
Second-quarter GDP grew 0.1% quarter-over-quarter, a deceleration from the previous quarter’s 0.6%, which had been buoyed by preemptive export activity ahead of tariff shifts. Nevertheless, the figure beat consensus expectations of zero growth. On an annual basis, output rose 1.4%, slightly below 2024’s 1.5% but ahead of projections.
Labor market strength continued to support sentiment. The euro area unemployment rate remained at 6.2% in June, a record low. Confidence indicators also improved modestly, particularly in manufacturing and services, reflecting cautiously optimistic business sentiment.
Monetary policy expectations remain finely balanced. While current data reduce immediate pressure on the ECB to ease further, persistently high core inflation and external trade volatility could challenge policymakers in the months ahead.
United Kingdom
Resilient Housing, Currency Weakness Supports Equities
UK equities performed comparatively better than their continental peers. The FTSE 100 eased just 0.57%, supported in part by a weakening British pound, which boosts the overseas earnings of multinational firms listed in the index.
Sterling fell against the U.S. dollar as traders recalibrated their expectations for further Bank of England (BoE) rate hikes. The currency’s depreciation offered a cushion for exporters and companies with significant global exposure.
In domestic data, the UK housing market showed surprising strength. The Nationwide House Price Index rose 0.6% month-over-month in July, recovering from a 0.9% dip in June. This rebound coincided with a normalization of mortgage activity after the expiration of a temporary tax incentive. Bank of England figures confirmed that mortgage approvals in July outpaced expectations.
While headline inflation continues to moderate, core services inflation remains sticky—posing a dilemma for BoE policymakers. The central bank may be forced to strike a balance between curbing inflation and supporting an economy that’s already showing signs of softening under the weight of elevated borrowing costs.
On the trade front, the UK remains marginally insulated from the U.S.–EU tariff agreement but continues to face challenges related to post-Brexit supply chain reconfigurations and fragile consumer sentiment.
Japan
BoJ Stands Pat Amid Currency Volatility and Upbeat Data
Japanese equities weakened, with the Nikkei 225 losing 1.58% and the TOPIX edging down 0.11%. Technology stocks were notably under pressure due to earnings downgrades and risk aversion tied to renewed global trade friction.
The yen breached the JPY 150 mark against the U.S. dollar, prompting interventionist rhetoric from Finance Minister Katsunobu Kato, who called for exchange rate stability.
The Bank of Japan held its benchmark rate steady at 0.5% but revised its inflation outlook upward. Core CPI is now forecast to rise 2.7% in FY2025, reflecting persistent food inflation. Growth expectations were also nudged higher to 0.6%. BoJ Governor Kazuo Ueda noted that the likelihood of achieving the bank’s economic projections had increased, raising speculation about a potential rate hike later this year.
Domestically, June’s industrial production surprised on the upside, expanding 1.7% month over month, while retail sales climbed 2.0% year over year, both exceeding forecasts.
China
Manufacturing Weakens as Policy Uncertainty Grows
Mainland Chinese stocks declined on a combination of weaker macro data and global trade headwinds. The CSI 300 dropped 1.75% while the Shanghai Composite fell 0.94%. Hong Kong’s Hang Seng was hit harder, down 3.47%.
China’s PMI readings disappointed across the board. The Caixin manufacturing PMI slipped to 49.5, falling into contraction territory and undercutting expectations. The official PMI fell to 49.3, marking a three-month low and missing forecasts. Adverse weather—including heatwaves and flooding—was cited as a disruption to output.
These figures stoked concern over weakening momentum in the world’s second-largest economy. Although earlier gains in exports and government stimulus supported growth in the first half, economists are warning of a potential slowdown as those tailwinds fade.
Other markets
Chile
In Chile, the central bank reduced its benchmark rate from 5.00% to 4.75%, citing reduced inflationary pressures—June’s annual CPI fell to 4.1%. Policymakers acknowledged weak credit demand, slow job creation, and currency depreciation, but noted robust private investment activity. The bank reiterated its aim of achieving 3% inflation over a two-year horizon, signaling further rate cuts may follow if conditions allow.
Brazil
Brazil’s central bank opted to keep its Selic rate unchanged at 15.00%, maintaining a highly contractionary stance. Officials cited strong labor market data, persistent inflationary risks, and uncertainty stemming from new U.S. tariffs on Brazilian goods—including a recent 40% levy on select exports. The bank warned that further rate hikes remain on the table should inflation expectations remain unanchored.
Outlook
Heightened Sensitivity to Trade and Central Bank Messaging
Looking ahead, investor attention will remain firmly fixed on central bank communications and geopolitical developments. In the U.S., markets are recalibrating expectations for monetary easing after mixed economic signals. Meanwhile, global trade dynamics continue to evolve, with recent tariff actions rippling through supply chains and capital flows.
Europe’s economic resilience faces its next test with autumn energy price trends, while Japan and China must navigate monetary policy divergence and structural shifts in growth. Latin America, for its part, remains exposed to commodity cycles and U.S. fiscal policy changes.
Across regions, equity markets appear to be entering a more volatile phase marked by divergence in policy, inflation paths, and trade outcomes. Investors would be well served to brace for elevated risk premiums and reconsider portfolio exposures amid changing global fundamentals.
