RESILIENT US EQUITIES SHINE AMID PERSISTENT GLOBAL TRADE TENSIONS AND POLICY UNCERTAINTY
HIGHLIGHTS
- Equity markets faced tariff-related volatility, but US tech giants like Microsoft and Meta delivered strong earnings supported by AI growth, pushing the S&P 500 up 2.24% and lifting investor sentiment globally. Notable drawdowns came from Amazon and Novo Nordisk following disappointing guidance and rising cost pressures.
- US price indices have been edging up for the past three months as the new tariff regime takes place.
- While Chinese equities rebounded (+4.27%), Indian markets underperformed (-2.75%) amid tariff tensions.
- The Fed held rates at 4.25–4.50%, citing persistent inflation and mixed labour data, while internal divisions emerged. Trump has been at odds with the Fed Chair Jerome Powell with potential repercussions on the Fed’s independence status and trust in the US financial system at stake.
- The ECB also kept rates steady amid weak eurozone growth and sticky core inflation. Despite a weakening backdrop, German’s stimulus remains in focus for markets.
- Copper led industrial metal losses (-6.65%) on tariff and demand concerns, while crude oil rose ~9% as OPEC+ signalled output increases. Gold remained flat amid persistent inflation and safe-haven demand.
- The US dollar posted its strongest monthly gain of 2025 (+3%) amid macro resilience, Fed hawkishness, and safe-haven flows. Sterling depreciated against most peers due to soft economic data and rising rate cut expectations.
EQUITY MARKETS
Equity markets encountered renewed volatility in the latter part of July, largely helped by the re-emergence of tariff-related uncertainties. Despite the broader cautious tone, leading US technology companies; most notably Microsoft and Meta, delivered robust earnings underpinned by continued progress in artificial intelligence. This buoyed investor sentiment coincided with a 2.24% gain in the S&P 500, reflecting sustained confidence in US equities, bolstered by solid economic indicators and sector-specific momentum.
Globally, equity performance was more tempered. The MSCI World rose by 1.31 per cent, lagging behind the S&P 500 and signalling comparatively softer investor appetite across non-US developed markets. European indices underperformed, with the Euro Stoxx 50 and Germany’s DAX posting modest gains of 0.47 per cent and 0.65 per cent respectively. The divergence highlights the relative strength of US equities, supported by stronger macroeconomic fundamentals and sectoral leadership, particularly within the technology space.
Political factors added an additional layer of complexity to market dynamics. President Trump heightened pressure on pharmaceutical firms to reduce domestic pricing and signalled potential reforms to key mortgage institutions, namely Fannie Mae and Freddie Mac. Simultaneously, the US dollar posted its strongest monthly performance of the year, underpinned by robust corporate earnings in the technology sector and a mixed but broadly constructive set of economic data.
Inflation remained persistently elevated, prompting the Federal Reserve to maintain interest rates at current levels. While wage growth showed signs of easing and labour market expectations moderated, the broader inflationary environment continues to present a challenge. As such, market participants are expected to remain vigilant, with employment data and potential geopolitical developments likely to shape near-term sentiment.
In Asia, Chinese equities delivered a relatively notable recovery, with the CSI 300 Index returning 4.27 per cent in July. The positive momentum was supported by a stabilisation in macroeconomic conditions, with China’s economy expanding by 5.3 per cent in the first half of the year, amid strong industrial production and export growth. Nevertheless, July saw a deceleration in factory activity, as reflected in manufacturing survey results, prompting authorities to reaffirm their commitment to targeted fiscal support and structural reform. By contrast, Indian equities underperformed, with the NIFTY Index declining by 2.75 per cent. This setback came despite robust domestic manufacturing data, which reached a 16-month high, and an upgraded GDP growth forecast of 6.4 per cent by the IMF. The weaker performance was largely attributed to renewed trade tensions, with the Reserve Bank of India warning that US tariff measures could shave up to 0.4 percentage points off national growth.
In the corporate world, Microsoft's shares rallied following the release of strong second-quarter results, supported in part by solid performance in its cloud services and artificial intelligence segments. The company’s market capitalisation briefly surpassed $4 trillion, briefly becoming the second US firm to achieve this milestone. Management highlighted growing enterprise demand for AI solutions and healthy international momentum. While concerns over the dominance of large-cap tech firms persisted, investors viewed Microsoft’s AI capabilities as a key advantage. The positive outlook provided a counterbalance to prevailing macroeconomic uncertainties, including trade tensions and labour market signals.
Meta Platforms delivered strong revenue guidance for Q2, largely supported by rising advertising demand linked to AI-powered engagement tools. Its shares rose by over 11%, reaching a new record level, reflecting investor optimism around monetisation opportunities in artificial intelligence. Meta’s performance contrasted with broader softness in the semiconductor and hardware sectors. The firm’s upbeat outlook helped temper broader concerns about escalating US trade tariffs. Its gains also reignited debate over the concentration of mega-cap stocks in major indices.
Amazon shares dropped by around 8% mid-month following underwhelming Q2 results, particularly within its AWS cloud division. The company withheld full-year guidance, citing economic headwinds and growing trade policy uncertainty. CEO statements highlighted an estimated $1.1 billion in additional tariff-related costs, fuelling investor concern. The sharp reaction made Amazon the weakest performer in the S&P 500 that day. The episode reinforced fears around macroeconomic reliance in corporate earnings execution.
Novo Nordisk shares dropped by roughly 23% (the largest single-day drop in its history) after cutting full-year sales forecasts due to intensifying competition in the obesity treatment market. The announcement coincided with a CEO transition and wiped out around $57 billion in market value. Some investors raised concerns about the firm’s ability to maintain its growth trajectory in the face of pricing pressures. The decline dragged Denmark’s equity market lower and had a spillover effect on other pharmaceutical stocks. The event highlighted market sensitivity to earnings guidance downgrades in high-growth industries.
CREDIT MARKETS
In July, US credit markets maintained a cautiously constructive tone, supported by steady macroeconomic data and improving investor sentiment. While persistent inflationary pressures continued to influence market behaviour, high-yield credit benefited from modest spread compression, aided by a relatively stable corporate earnings season. Investment-grade bonds remained resilient, underpinned by sustained demand and limited issuance during the summer lull. Overall, activity in credit markets reflected a tone of measured optimism, with investors displaying a selective bias towards quality. The Federal Reserve held rates unchanged at its July meeting, reiterating its commitment to a data-dependent policy approach. Acknowledging softer labour market indicators and some disinflationary progress, officials nonetheless flagged ongoing inflation risks. Market participants interpreted the Fed’s stance as moderately dovish, with rate cut expectations deferred further into the year.
This shift in outlook supported longer-duration credit, although pressures persisted at the long end of the US Treasury curve. Divergent views among Fed policymakers emerged during the month with some emphasising inflation caution, while others signalled a willingness to adjust policy if growth trends weaken further. Despite this uncertainty, demand for US dollar-denominated credit remained firm, reflecting attractive yields and the relative resilience of the US economy compared to global peers. In Europe, credit markets adopted a more defensive stance amid subdued economic momentum. Investment-grade spreads were broadly stable, while high-yield segments experienced incremental tightening. The European Central Bank opted to keep interest rates steady, citing sticky core inflation despite headline inflation trending towards the 2% target. The cautious tone, coupled with tepid growth across major eurozone economies, resulted in lower market activity and a generally risk-averse approach among investors.
CENTRAL BANKING, THE ECONOMY AND GEO-POLITICS
The Federal Open Market Committee (FOMC) opted to maintain the benchmark federal funds rate at 4.25%–4.50% during its July meeting, marking a fifth consecutive hold. This decision came despite mounting pressure from political figures, including former President Trump, to deliver rate cuts. Two Trump-appointed governors, i.e. Michelle Bowman and Christopher Waller reportedly dissented, arguing that economic and labour market data supported a 25 basis-point reduction immediately. Chair Powell emphasised a "data-dependent" policy, affirming that the economy remains in a solid position, with low unemployment and modest inflation but flagged persistent risks linked to tariffs and labour market dynamics. He argued that current monetary conditions are “modestly restrictive” yet appropriate to tame inflation without unnecessarily straining growth, maintaining that policy actions are guided by mandate goals rather than political narratives.
The United States saw its economy rebound sharply in Q2, with annualised GDP expanding at approximately 3.0%, which was faster than expected. However, much of this growth was attributed to a sharp drop in imports rather than robust domestic demand, which was the weakest in two and a half years. July’s employment report delivered a sobering view: just 73,000 jobs were added, unemployment rose to 4.2%, and payroll numbers for May–June were revised down by 258,000, prompting concern about labour market cooling.
Across Europe, inflation in Germany eased to 1.8% in July, though core consumer price growth remained sticky at 2.7%, putting into doubt immediate scope for further policy loosening. Eurozone growth held up better than feared with GDP up 0.1% in Q2, led by firms in Spain, France and Ireland, even as Germany’s economy slipped by 0.1% amid trade disruptions. The European Central Bank chose to hold rates at 2.0% and emphasised caution amid lingering external risks, including new US-imposed tariffs. Meanwhile, the EU accepted a compromise trade pact with the US implementing a 15% blanket tariff on most imports and a non-binding $600 billion European investment pledge which are moves seen as introducing uncertainty over whether longer-term growth can be sustained.
COMMODITIES
Commodity markets were mixed in July. The overall index slipped slightly due to a late-month decline in industrial metals.The overall commodity index slipped by approximately 0.8% as copper prices dropped by 6.65%, largely due to US tariff decisions, a stronger dollar, and softer Chinese data. Energy markets stood out positively, with WTI and Brent crude both advancing around 9%, supported by expectations of an OPEC+ production increase and geopolitical manoeuvring among key oil producers. Meanwhile, precious metals remained broadly flat, as investor appetite for gold held steady amid persistent inflation concerns and lingering uncertainty around US tariff policy.
CURRENCIES
The US dollar posted one of its strongest monthly gains of 2025 in July, with the Dollar Index rising 3 per cent. This rebound, following months of weakness, reflected resilient US economic data, renewed trade tensions, and safe-haven demand ahead of the 1st of August tariff deadline. The Federal Reserve’s decision to hold rates steady, alongside elevated core inflation and a rising PCE index, reinforced a cautious monetary stance and supported the dollar further. Sterling, by contrast, weakened against most major currencies amid soft UK economic data and growing expectations of rate cuts. Investor sentiment remained cautious amid fiscal uncertainty and mixed economic signals throughout the month.
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