Global equities sink as Trump hikes tariffs
US stocks posted weekly losses as tariff concerns took hold. After months of stalling, Trump stood firm on the 01 August trade deadline. While some countries were able to see lower rates than what were threatened during April’s ‘Liberation Day’, others saw their rates jump. The broad tariff blitz was worse than expected pressuring equities on Friday. Further adding to the cautious sentiment was the release of July’s jobs report in which the economy added fewer jobs than expected. Both factors prompted traders to increase their bets of a September rate cut from the Federal Reserve. Earlier in the week the Fed had held rates steady at their July meeting and comments from Chairman Powell had caused traders to reduce their bets of a September cut. As of Friday afternoon, data from CME Group pointed to traders assigning an 83% chance of a September cut.
The shift in rate expectations as well as the tariffs pushed Treasury yields lower, with the 10-year note ending at 4.21%. For the major equity indices, the Dow Jones Industrial Average fell 2.9%, in its worst week since the early April sell-off. The S&P 500 declined 2.4%, and the tech-heavy Nasdaq Composite lost 2.2%, even though at the start of the week they had been at record highs. Amongst a wave of company earnings, Big Tech helped to prop up the market, with Microsoft and Meta both delivering better-than-expected results.
The pan-European STOXX 600 index fell 2.6%, seeing its largest daily drop in over three months on Friday. European markets were also pressured by the tariff hikes at the end of the week, but there had already been a somewhat downbeat mood as investors digested the US-EU trade deal framework, which is viewed more as a win for the US than the EU. France’s CAC 40 fell 3.7%, the German DAX dropped 3.3% whereas the UK FTSE 100 fell just 0.6%, supported by a weaker pound. Switzerland’s SMI index was down 1%. It had been closed on Friday for a holiday not giving time for investors to react to the unexpected 39% tariff rate from the US.
In Japan, the broader TOPIX index dropped just 0.1% whilst the Nikkei 225 declined 1.6%, hurt by the trade sentiment as well as some weaker company earnings. The Bank of Japan held its interest rate unchanged while raising its inflation forecasts, keeping alive hopes that the central bank may hike rates this year. The Shanghai Composite fell 0.9% and Hong Kong’s Hang Seng retreated 3.5%. The latest Purchasing Managers’ Index data came in lower than expected, in a sign of a slowdown in the economy. Trade talks between the US and China held in Sweden proved inconclusive.
Weekly macro highlights
Fed keeps interest rates unchanged
The US central bank kept interest rates unchanged on Wednesday, as widely anticipated by markets. The decision was made by a 9-2 vote, with Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman dissenting from the decision, preferring to cut interest rates by a quarter point. Since the last meeting in June, US economic data did not give the majority of policymakers enough evidence to change their monetary policy stance. The press release highlighted the Federal Open Market Committee’s view that despite signs of economic growth moderating in the first half of the year, inflation remains elevated and labour market conditions are still solid. Data from the Bureau of Labor Statistics revealed that non-farm payroll employment increased by 73,000 in July, representing a significant slowdown in job growth in relation to the previous month, while data for May and June was revised downward. Additionally, the unemployment rate increased marginally to 4.2% in July.
Eurozone economy expands in Q2
The eurozone economy expanded by 0.1% in the second quarter of 2025, decelerating from the 0.6% GDP growth registered in the first quarter, according to preliminary figures released by Eurostat. This marginal increase exceeded analyst expectations of zero growth. Germany and Italy contracted by 0.1% quarter-on-quarter (QoQ), while France grew 0.3% QoQ. Spain continued to outperform with 0.7% QoQ growth. Compared to the same period last year, eurozone output rose by 1.4%. Growth across the wider EU was slightly stronger, with a quarterly expansion of 0.2% and a 1.5% year-on-year growth. Furthermore, the composite Purchasing Managers’ Index hit an 11-month high in July, driven by a strong rebound in the services sector, while European Commission survey data also beat expectations. The improvement in sentiment has been supported by the recent EU-US trade deal, announced days before the release of growth figures. Meanwhile on Tuesday, the International Monetary Fund raised its eurozone growth forecast for 2025 from 0.8% to 1%, noting that the newly agreed trade deal has not yet been factored into its projections.
Bank of Japan keeps rates steady
The Bank of Japan (BoJ) held its benchmark short-term interest rate steady at 0.5% on 31 July. This decision was unanimous and widely expected by markets. While the BoJ noted that uncertainties remain high, particularly around trade policy, its tone was notably less cautious than at the previous meeting in June. At that time, officials had described US tariff risks as “extremely uncertain”. This shift in sentiment follows the Japan-US trade agreement earlier this week, which appears to have eased concerns over a steep downturn. The central bank raised its core inflation forecast for fiscal year 2025 to 2.7%, in contrast to its previous 2.2% forecast. The BoJ cited persistent rises in food costs as a potential driver of public perceptions around inflation and underlying price pressures.
