United States
Equity Performance & Market Tone
U.S. equities spent the week retracing the prior sell-off, with risk appetite most visible in technology shares. The Nasdaq Composite ultimately set a fresh all-time closing high, while the S&P 500 and the Russell 2000 also advanced. Participation broadened beyond mega caps, yet leadership remained concentrated in tech, and the S&P MidCap 400’s 0.63% weekly rise underscored a still-selective bid across size segments. Beneath the headline move, traders pointed to steady intraday dip-buying and lighter de-risking flows than in the previous week, suggesting that the market was treating the earlier pullback as an opportunity rather than the start of a trend reversal.
Corporate Developments: Apple as a Sentiment Anchor
A single corporate storyline did outsized work in shaping investor mood. Apple unveiled an additional USD 100 billion allocation to U.S.-based manufacturing over the coming four years, supplementing an existing USD 500 billion plan. Policy chatter indicated such commitments could reduce exposure to the administration’s steep semiconductor tariffs, a point that resonated with investors focused on supply-chain certainty. The stock rallied 13.33% over the week, and the magnitude of Apple’s move fed through factor baskets and passive flows, amplifying the lift to the cap-weighted indices.
Trade Policy Landscape & Market Reaction
A new round of U.S. global tariffs went live on Thursday, but with several large partners having arranged accommodations before the deadline, the market reaction proved notably calmer than in earlier episodes. Two items kept trade at the forefront: the announced doubling of tariffs on Indian goods to 50% tied to India’s purchases of Russian oil, and the breakdown of discussions with Switzerland, which left levies on Swiss imports fixed at 39%. For equities, the policy backdrop was not the primary impulse this week, but it continued to inform sector-level dispersion and positioning in internationally exposed franchises.
Policy Outlook: September Cut Probability Builds
Communication from Federal Reserve officials encouraged markets to price greater odds of near-term easing. San Francisco Fed President Mary Daly remarked that policy “will likely” need adjustment in coming months if labor momentum wanes further and inflation remains contained. Reinforcing the perception of a tilt toward accommodation, President Trump nominated Stephen Miran—currently chairing the White House Council of Economic Advisors—to temporarily fill a vacancy on the Fed’s Board of Governors. By Friday afternoon, CME FedWatch placed the probability of a September rate cut at roughly 90%, and rates markets reflected that conviction along the front end of the curve.
Economic Pulse: Services Downshift & Labor Signals
Top-down data offered a cooler read on activity. The ISM services PMI slipped to 50.1% in July from 50.8%, missing a 51.3% consensus and landing just above the expansion threshold. The subindex mix was less favorable: new orders softened and the employment component contracted for a second straight month, offset by a prices index that climbed to 69.9%, the highest since October 2022. Labor prints also mixed the message. Initial jobless claims rose to 226,000 in the week ended August 2 from a revised 219,000, while continuing claims added 38,000 to 1.97 million—the loftiest level since November 2021—keeping debate alive about the degree of cooling in the jobs market.
Fixed Income: Treasuries Softer, Spread Products Firmer
Treasury total returns turned negative as yields pushed higher across most maturities, an adjustment consistent with rising odds of an imminent cut already in the price and focus shifting to the path thereafter. By contrast, municipal bonds extended gains on persistent cash inflows and a brisk primary calendar; deals were heavily oversubscribed, and secondary liquidity improved. In credit, investment-grade paper posted positive returns despite a brief wobble around the ISM release, while high yield recovered last week’s weakness amid a fuller earnings slate and a slightly brighter macro tone.
Weekly U.S. Equity Scoreboard
| Index | Friday’s Close | Week’s Change | % Change YTD |
|---|---|---|---|
| DJIA | 44,175.61 | 587.03 | 3.83% |
| S&P 500 | 6,389.45 | 151.44 | 8.63% |
| Nasdaq Composite | 21,450.02 | 799.89 | 11.08% |
| S&P MidCap 400 | 3,124.04 | 19.44 | 0.10% |
| Russell 2000 | 2,218.42 | 51.64 | -0.53% |
Source: Reuters, Bloomberg, Yahoo! Finance. Data as of market close Friday.
Europe
Regional Equity Snapshot
European stocks rallied in local-currency terms, with the STOXX Europe 600 advancing 2.11% as earnings remained the central driver and geopolitical headlines turned incrementally less negative. The advance was broad-based, with Italy’s FTSE MIB up 4.21%, Germany’s DAX gaining 3.15%, France’s CAC 40 adding 2.61%, and the UK’s FTSE 100 edging 0.30% higher. Under the surface, rate-sensitive areas caught a bid alongside cyclicals exposed to a benign growth-and-inflation mix, while defensives lagged modestly as risk appetite returned.
Bank of England: Small Cut, Narrow Vote, Cautious Guidance
The Bank of England reduced Bank Rate by 25 bps to 4% in a decision that required a rare second-round vote and ultimately passed 5–4. The narrow margin underscored an institution balancing a visible labor-market slowdown against inflation that has not yet settled comfortably at target. Governor Andrew Bailey described the move as finely balanced and stressed that any additional reductions would proceed gradually. The BoE’s projections showed inflation rising to 4% in September from 3.6% in August, and the statement emphasized that upside risks to price pressures remain salient even as headline measures trend lower.
Euro Area Macro: Consumption Resilience with Softened Sentiment
June retail sales offered a constructive signal, increasing 0.3% month on month and 3.1% year on year—well ahead of the 2.0% analyst consensus after upward revisions to May and April. The run rate suggested consumers were still spending into mid-year despite higher borrowing costs. Sentiment gauges, however, cooled in August following a stronger second quarter, hinting that businesses and investors remain unconvinced that the U.S.–EU framework deal will materially reaccelerate demand on its own. That divergence—solid realized consumption vs. softer forward sentiment—kept the debate open about the pace of any second-half improvement.
Germany: Industrial Drag & GDP Implications
Germany’s industrial engine remained a pressure point. Output fell 1.9% in June, the weakest level since the 2020 pandemic phase and far below expectations for a 0.5% decline. A downward revision to May left second-quarter production down 1.0%. Orders contracted 1.0% in June for a second month, reflecting lackluster foreign demand and lingering bottlenecks in capex-heavy sectors. The sequence of misses raised the risk that Q2 GDP may have shrunk by more than the preliminary –0.1% estimate, complicating the region’s broader recovery narrative even as services and consumption elsewhere in the bloc looked firmer.
Japan
Equities & Currency: Earnings Drive, FX Steady
Japanese shares extended higher on the back of solid corporate results, with the Nikkei 225 up 2.50% and the TOPIX gaining 2.56%. The yen traded largely range-bound around JPY 147 per U.S. dollar. Breadth improved compared with earlier weeks as exporters and domestically oriented names both participated, aided by clarity on the trade front and supportive global equity risk sentiment.
Trade Clarification: Autos in Focus
Initial confusion about the July U.S.–Japan agreement faded after officials clarified the mechanics: the 15% tariff on Japanese exports would not stack atop existing levies, and, crucially for the auto complex, the rate on autos would be reduced from 27.5% to 15%. That adjustment helped relieve a key overhang for manufacturers and contributed to the outperformance of select industrials and suppliers that had been discounted for policy risk.
BoJ Policy Debate & Rates Market
JGBs firmed modestly, with the 10-year yield slipping to 1.49% from 1.55%. Minutes from the Bank of Japan’s July meeting showed a genuine divide on timing. One board member argued for at least two to three months to observe tariff impacts and cross-border demand resilience; if the U.S. absorbs the changes better than feared, the BoJ could feasibly pivot from its wait-and-see stance by year-end. Another member emphasized a baseline of moderating growth and soft underlying inflation, recommending continued accommodation. Market pricing reflected that optionality, with limited conviction around the sequencing of any future steps.
Household Metrics: Real Income & Spending
Real wages fell 1.3% year over year in June after a 2.6% drop in May, leaving purchasing power under pressure even as nominal pay settlements improve. Household spending slowed to 1.3% year over year from 4.7% in May and undershot a 2.6% forecast, suggesting persistent inflation and tariff uncertainty are encouraging more selective consumption. These household dynamics make the BoJ’s calibration challenge more delicate even as parts of corporate Japan report healthier margins.
China
Equities & External Demand: Export Surprise Supports Risk
Mainland Chinese benchmarks advanced as foreign demand helped offset U.S. trade frictions. The CSI 300 rose 1.23%, and the Shanghai Composite added 2.11% in local-currency terms, while Hong Kong’s Hang Seng Index increased 1.43%. Exports climbed 7.2% year over year in July to USD 322 billion, beating expectations. Heavier shipments to Europe, Southeast Asia, Australia, and other destinations more than compensated for a 22% decline to the U.S. after a 16.1% drop in June. July’s yuan softness enhanced price competitiveness, reinforcing the outturn.
Services Activity: Broadening, Despite Property Headwinds
A private-sector survey indicated a re-acceleration in services momentum. The S&P China services PMI improved to 52.6 from 50.6—the strongest print in 14 months. The summertime travel, transport, and entertainment peak provided a seasonal boost, but the rebound also hinted at resilience in service-led demand even as the property slump tempers broader consumer confidence. The durability of that split between services and real estate will be central to second-half growth dynamics.
Other Key Markets
India: Steady Policy, Resilient Growth, Trade Uncertainty
The Reserve Bank of India kept the policy repo rate unchanged at 5.50% in a unanimous decision. Officials characterized the global setting as “challenging,” calling out “trade negotiation challenges” in particular, since India has not yet finalized an agreement with the U.S. that would lead to more favorable tariff treatment. That context sharpened after President Trump signed an executive order lifting the overall U.S. tariff rate on Indian exports to 50% in about three weeks due to oil purchases from Russia amid the conflict with Ukraine. Domestically, the RBI described growth as “resilient,” noting uneven sectoral performance but continued support from policy and private-sector demand.
Inflation trends were more encouraging: CPI has fallen for eight straight months, largely thanks to a sharp decline in food prices, and the outlook for 2025–2026 was described as “more benign than expected.” Even so, the longer-term CPI projection was raised to 4.9%, which sits above the midpoint of the 2%–6% tolerance band. With 100 bps of cumulative rate cuts already delivered since February, solid growth, and tariff risks still evolving, the central bank judged that a neutral stance remains appropriate and that the easing cycle may be at or near a natural pause.
Czech Republic: Unchanged Rates, Hawkish Lean
The Czech National Bank left the two-week repo rate at 3.50% and maintained the discount and Lombard rates at 2.50% and 4.50%, respectively, with a unanimous vote. Messaging leaned hawkish: officials stated that “ongoing inflation pressures from the domestic economy currently preclude a further decrease in interest rates.” Forecasts put headline inflation above 2% through year-end, with core measures elevated for coming quarters. Money supply growth of 4.1% and gradually rising credit activity also featured in the rationale, with the bank arguing that stabilizing inflation around the 2% objective requires keeping credit expansion “moderate” and guarding against any “excessive” acceleration in money growth.
