The United Kingdom, Europe, South Korea, and potentially China in the near future: the list of US-negotiated trade deals continues to grow, yet uncertainty persists with several key partners. At the same time, investor focus is shifting back to economic fundamentals, with softer-than-expected US employment data released on Friday triggering a sell-off. Nonetheless, recent tech earnings results reaffirmed the sector’s enduring dominance.
Market recap
Beyond the numbers
Macroeconomics
The Fed maintained its monetary policy at its recent meeting given the uncertainty surrounding the impact of tariffs on inflation. Although their policy remains moderately restrictive, the door is open to a possible change in September, as two Fed governors dissented at the latest meeting. We still anticipate two potential rate cuts later in the year.
US GDP growth was strong in the second quarter, rising 3% thanks to lower imports. Nevertheless, domestic demand slowed from 1.9% to 1.2%, aligning with our soft-landing scenario (forecast to be 1.5% for 2025). Moreover, the US job market showed signs of cooling in July, with nonfarm payrolls rising by only 73,000, falling short of the expected 110,000. Compounding the slowdown, earlier months saw significant downward revisions.
In Q2, GDP growth in the eurozone was better than expected, rising by 0.1%. While Spain and France posted stronger growth, activity declined by 0.1% in Germany and Italy. With a trade agreement with the US and increased fiscal support on the horizon, eurozone growth is expected to average 1.2% in 2025.
In trade news, the US struck a trade deal with South Korea (15%) while slapping steeper tariffs of 25% on India, 35% on Canada, 50% on Brazil and most notably 39% on Switzerland as 1st of August deadline expired. Meanwhile, negotiations between the US and China have led to a possible extension of the current 90-day truce. Simultaneously, President Trump granted Mexico - America’s largest trading partner - a 90-day reprieve, keeping tariffs at 25% to allow more time for negotiations.
This week, the Bank of England (BoE) meeting will come under scrutiny, as pressure to ease interest rates has increased due to the domestic economic slowdown. The final PMI and ISM indices on business sentiment in the US and globally will be released, and these are likely to confirm the rebound in the services sector.
Asset allocation: strategic views as at August 2025
Equities
Weaker-than-expected US employment data spurred a sudden risk-off mood at the end of last week, leading global equities to tumble -2.5% (MSCI ACWI total return). Investor sentiment was also influenced by trade developments, with a European deal being offset by steeper tariffs for other major trading partners, as well as central bank news and corporate results, with four of the ‘Magnificent 7’ reporting Q2 results.
All major regions ended the week in negative territory (US (S&P 500) -2.3%, Europe (STOXX 600) -2.6%, MSCI China -3.4%), as did all sectors with the exception of global utilities (+0.3%) which were supported by their defensive profile and a decline in long-term yields. While macro-sensitive areas of the market experienced the steepest declines due to concerns over economic growth (US small caps -4.2%, global materials -4.5% and consumer discretionary -4.4%), a bright spot was the relative outperformance of the ‘Magnificent 7’ (-1.5%).
Building on the solid results from Alphabet in the previous week, stronger-than-expected reports from Meta and Microsoft further reinforced the AI narrative, as the former registered accelerating sales growth and outlined aggressive AI spending plans, while the latter published robust strength in its cloud business on the back of AI demand. Apple posted its strongest quarterly growth in more than three years, whereas Amazon’s results were more mixed due to a tepid forecast for its cloud-computing division and significant AI investments.
The AI theme has contributed to US equities, and more particularly to the US technology sector, which outperformed global equities in July (S&P 500 +2.3%, S&P 500 Technology +5.2% vs. global equities +1.4%). The ongoing AI race underpins our 4/5 rating for both the technology sector and US equities, as the US market is the most exposed to this theme which benefits from structural growth and better relative visibility. Notably, the technology sector and the ‘Magnificent 7’ combined hold a 45% weighting in the benchmark US index (the S&P 500).
As of Friday, 66% of S&P 500 constituents had reported results with an 82% beat rate. EPS growth for Q2 now stands at +10.5% vs. +4.9% expected at the end of June. The week ahead will see continued Q2 reporting (24% of S&P 500 constituents) and, more importantly, investor attention turning to macro data to assess the health of the US economy following comments from the Federal Reserve that it saw signs of slowing, a weak US jobs report, and tariff impacts starting to kick in. The S&P 500 will also be entering what has historically been its toughest stretch of the year: over the past three decades, the benchmark has performed worst in August and September, losing -0.7% on average in each month, compared with a +1.1% gain on average across other months.
Investors are turning their attention to macro data to assess the health of the US economy
Fixed income
US rates fell sharply following the publication of weak jobs data, with 10-year Treasury yields dropping 15 bps to 4.21% on Friday on the back of nonfarm payroll figures; this wiped out July’s yield gains (from 4.22% to a mid-month peak of 4.49%). European rates showed sympathetic volatility but ended the week up 10 bps at 2.72%. The FOMC held rates at 4.25–4.50% on 31 July, with Chair Powell noting uncertainty about a September rate cut amid political pressures and tariff impacts. Markets tempered rate-cut expectations initially, but Friday’s weak data reversed this; the probability of a September cut is now 85%.
Fixed income markets benefited from falling rates: Treasuries and investment-grade bonds rose 0.8% over the week, while higher-duration emerging markets gained 0.5%, lifting year-to date returns to 7.1%. Riskier segments were mixed: high-yield bonds were flat (-0.1%), and AT1s rose 0.2%, bringing their year-to-date returns to 6.5%.
In its quarterly refunding announcement, the US Treasury confirmed no increases in note and bond (longer-dated) auction sizes for several quarters, as expected. It plans gradual rises in inflation-protected and T-bill auctions, as well as to double the frequency of 10–30-year nominal buybacks to boost liquidity, thus supporting longer- dated bonds. Secretary Bessent stressed the careful strategy and timing for extending debt maturities, echoing his 3% target for 10-year rates.
The FOMC held rates at 4.25–4.50% on 31 July
Forex & Commodities
The EUR/USD fell from levels of just under 1.18 to lows of just above 1.14 last week. The US Dollar Index (DXY) rose by over 2% in the week – its strongest performance since 2022. The rise reflected the market reaction to the EU–US trade agreement and the US Federal Reserve meeting which kept rates on hold at 4.50%.
The USD is consolidating following its material weakening in Q1 and Q2 – this consolidation can last until late in Q3. Despite the stronger USD, gold prices ended the week higher driven by Friday’s risk-off, finishing the week at USD 3’360 per oz.
The main event for the market this week will be the BoE meeting on Thursday, where we expect it to cut rates by 25 bps; this has already been priced in by GBP exchange rates. Swiss CPI data will also be released with little reaction expected for CHF exchange rates.
The USD consolidation could last until late in the third quarter
The opinions expressed herein are correct as at 04 August 2025 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.