MARKET PULSE: MID OF JULY 2025

EQUITY MOMENTUM COOLS AMID TRADE TENSIONS & POLICY UNCERTAINTY


HIGHLIGHTS

> After a strong Q2 rally, global equity markets have entered a consolidation phase, weighed down by renewed macroeconomic caution and heightened volatility linked to escalating US trade tariffs, with the S&P 500 pulling back from record highs.

> President Trump’s plan to impose blanket tariffs on over 150 countries has intensified market uncertainty, contributed to Japan’s export contraction, and raised fears of a technical recession, while also fuelling volatility that benefited bank trading desks.

> Despite global headwinds, risk appetite remains solid, with firms like Goldman Sachs and Morgan Stanley posting record equity trading revenues, while others such as BlackRock missed expectations. Notable corporate developments include Tesla’s India debut and Meta’s AI infrastructure expansion.

> Copper dipped amidst rising inventories and tariff concerns, while iron ore rebounded on strong Chinese GDP. Oil stayed range-bound amid supply concerns, and gold edged higher, supported by safe-haven flows amid ongoing geopolitical uncertainty.

> The euro strengthened as investors reduced dollar exposure, while the US dollar showed weakness following hot inflation data. In the UK, rising CPI figures caused gilt yields to climb and diminished expectations for a near-term rate cut, leading to a 2.5% decline in sterling.


EQUITY MARKETS

Equity markets have recently shown signs of consolidation following a strong rally in the second quarter. The upward momentum, driven largely by optimism around resilient consumer demand and improving corporate fundamentals, has encountered renewed caution as investors reassess the macroeconomic backdrop. Persistent uncertainties surrounding global trade policy particularly escalating tariff threats have injected volatility into markets, limiting the upside for major indices such as the S&P 500, which retreated after approaching record highs.

During the first two weeks of July, the Taiwan Stock Exchange (+3.4%) outperformed the broader global equity market. Easing tensions between the US and China boosted interest in the CSI 300, which delivered a return of 2.45 per cent, outperforming both US and European equity markets. The FTSE 100 also recorded a strong gain (+2.04%) over the period, surpassing the returns of the Nasdaq Index (+1.54%), the Euro Stoxx 50 (+1.03%), and the S&P 500 (+0.67%).

Market participants remain sensitive to inflation data and its implications for future monetary policy. Although core inflation has moderated in recent months, indications of tariff-related cost pass-through to consumers have led to a reassessment of rate cut expectations. As a result, traders have scaled back the probability of a September interest rate cut, with the Federal Reserve now broadly perceived to be in a "wait-and-see" mode until clearer signals emerge from upcoming inflation and employment reports.

Despite these headwinds, risk appetite has remained resilient. Flows into equities have been robust, suggesting that investors are positioning for a scenario in which economic growth persists, and corporate earnings stabilise. However, with volatility at relatively subdued levels and positioning increasingly stretched, the market may be entering a more fragile phase, where the absence of strong catalysts or disappointing data could trigger pullbacks. While the broader trend for equities remains constructive, sentiment is increasingly balanced by macroeconomic caution. Attention will now turn to whether the forthcoming earnings season and evolving inflation picture can provide sufficient justification for further market gains or signal the beginning of a more sideways or corrective phase.

In the corporate world, Tesla has launched its first showroom in India, debuting Model Y vehicles priced from $70,000 as it seeks growth in emerging markets. Meta CEO Mark Zuckerberg revealed plans to construct several large-scale data centres to support the company’s AI initiatives, with the first expected to be operational by next year. Chinese airlines accepted delivery of three Boeing aircraft in a single day, signalling a possible thaw in US-China trade relations. Despite reaching a record $12.5 trillion in assets, Blackrock fell short of revenue and performance fee expectations.

Bank of New York Mellon Corp. Q2 profits beat forecasts, driven by higher yields on reinvested securities, resulting in a 9% revenue increase. Goldman Sachs Group Inc. reported amongst the highest on record revenue generated by its equities trading division in Wall Street history. The surge was driven by heightened market volatility triggered by the Trump administration’s trade war, resulting in a second consecutive record quarter for the unit. Morgan Stanley also posted its best-ever second-quarter performance in equities trading, as major US banks continued to benefit from the market fluctuations caused by President Donald Trump’s policy decisions.

Johnson & Johnson outperformed Wall Street’s quarterly revenue forecasts and raised its full-year guidance, signalling confidence despite mounting pressures on the pharmaceutical sector from tariff measures and scrutiny over drug pricing. Nvidia Corp. Chief Executive Jensen Huang expressed optimism about soon receiving US export licences to ship H20 AI chips to China, which would formally enable the company to resume sales in one of the world’s leading semiconductor markets. ASML Holding NV CEO Christophe Fouquet revised the company’s sales outlook for the coming year, citing concerns over global trade disputes and geopolitical tensions.


CREDIT MARKETS

Consumer sentiment in the United States rose to its highest level in five months at the start of July, driven by improved inflation expectations and a more positive outlook on economic conditions. According to data from the University of Michigan, consumers now expect prices to increase by 4.4% over the coming year, a decline from the 5% forecasted the previous month and the lowest reading since February. Similarly, expectations for inflation over the next five to ten years dropped to reported figures of 3.6%, also marking a five-month low. Despite this improvement, sentiment regarding business conditions, the labour market, and personal income remains subdued when compared to a year ago. This is putting pressure on the FED to ease financial conditions.

Over the past two weeks, yield curves have steepened in both the United States and Europe with the 15+ maturity bucket underperforming by 3% in the U.S. and around 1.9% in Europe. The belly of the curve for US Treasuries and European government debt was also under pressure in both sides of the Atlantic. The steepness of the yield curve complements the overall view that reflationary risks remain front and centre given tariff plans by Trump. Global aggregate corporate investment grade debt lagged European aggregate corporate investment grade debt with a return of -1.4% and +0.3%. On the high yield front, credit spreads mostly tightened in both Europe and the UK, whilst US counterparts remained flat.


CENTRAL BANKING, THE ECONOMY AND GEO-POLITICS

President Donald Trump has unveiled plans to impose blanket tariffs of either 10% or 15% on over 150 countries potentially, indicating a significant broadening of his protectionist trade policy. In remarks made during an interview and at a White House briefing, Trump said that official notifications would soon be dispatched, outlining the tariff rates applicable to these nations. While the precise rate is yet to be finalised, Trump maintained that the terms would be standardised across the group. President Donald Trump has reportedly denied any concrete plans to dismiss Federal Reserve Chair Jerome Powell, despite raising the possibility in a private meeting with Republican lawmakers. Speaking to reporters, Trump stated that such an action was "highly unlikely," although he did not entirely rule it out, implying it could only happen under conditions of proven misconduct, such as fraud.

Leading figures from Wall Street’s top financial institutions have voiced strong support for the Federal Reserve’s independence amid reported escalating tensions between President Donald Trump and Fed Chair Jerome Powell. The CEOs of Bank of America, Goldman Sachs, and JPMorgan Chase all underscored the vital role the central bank’s autonomy plays in maintaining economic stability.

Japan’s export sector contracted for the second consecutive month in June, raising fears that the country may be heading into a technical recession. The latest figures from the Ministry of Finance revealed a 0.5% annual decline in exports, primarily due to steep falls in the value of vehicle and steel shipments which are sectors directly affected by the intensifying US tariff measures introduced by the Trump administration.


COMMODITIES

In the metals segment, copper prices dipped as traders factored in rising inventories on the London Metal Exchange and an anticipated slowdown in US-bound shipments ahead of new tariffs in August. Nonetheless, analysts maintain a constructive outlook for copper in the long term, citing strong fundamental demand. Iron ore prices rebounded on stronger-than-expected Chinese GDP data and increased purchases by steel mills, while London-listed miners such as Rio Tinto and Antofagasta rose after reporting robust second-quarter production.

Oil markets traded within a narrow range, with Brent crude remaining below $70 a barrel. Short-term supply concerns kept the market in backwardation, but broader worries about economic growth and potential oversupply post-summer capped price upside. Traders remain focused on US inventory data for further direction. Gold prices edged up, demonstrating resilience in the face of rising Treasury yields and a firm dollar. Safe-haven demand persists amid ongoing uncertainty surrounding global trade negotiations and inflationary pressures.


CURRENCIES

The euro has continued to strengthen as global investors increasingly look to diversify away from the U.S. dollar. Analysts view the euro as the default alternative for investors seeking to reduce dollar exposure. Meanwhile, the U.S. dollar experienced some weakness following a stronger-than-expected rise in consumer price inflation for June, which hit 2.7% year-on-year. Despite the brief pullback, stronger inflation may complicate the Federal Reserve’s ability to cut rates in the near term, potentially providing medium-term support for the dollar.

In the UK, hotter-than-anticipated inflation data prompted markets to slightly scale back expectations for an August rate cut by the Bank of England. Annual CPI rose to 3.6% in June, up from 3.4% the previous month, causing UK gilt yields to climb and signalling that policymakers may need to adopt a more cautious stance on easing. Cable weakened by around 2.5 per cent over the period under review.

1. The Strait of Hormuz is a narrow waterway between Oman and Iran that connects the Persian Gulf to the Arabian Sea. It is one of the world's most critical oil transit chokepoints.
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