US banking giants led the start of the earnings season, with their management expressing confidence about consumer resilience despite economic uncertainty and price pressures, with the latter being confirmed by more solid June US headline inflation data which came in at 2.6% year-on-year. This figure also supported further consolidation of the US dollar, although we expect this to be short-lived. More corporate results are due this week and are likely to play a key role in steering market sentiment.
Market recap
Beyond the numbers
Macroeconomics
US inflation for June increased by 2.6% year-on-year for the headline index and 2.9% year-on-year for the core index as tariff hikes impacted the price of goods. Industrial confidence rebounded on the New York and Philadelphia indices, but price pressures rose in tandem. US retail sales increased by 0.6% month-on- month in June, suggesting strong and resilient consumption in Q2. UK inflation was also up, rising by 3.6% year-on-year due to resilience in services; however, wage growth slowed, and unemployment rose. Chinese growth was sustained in Q2, rising by 5.2%, supported by exports to Asia. Meanwhile, domestic demand was sluggish, and real estate indicators remained worrisome. Pressures from the US eased on the trade front after a trade deal with Indonesia and ongoing negotiations with the eurozone.
This week, the PMI industrial confidence indices will be published. They are expected to remain stable, given the extension of the pause on US tariffs. The European Central Bank (ECB) meeting should not lead to a new rate cut.
Asset allocation: strategic views as at July 2025
Equities
Global equities ended the week modestly higher, with the MSCI ACWI gaining +0.6% (total return) as markets digested a range of factors including trade developments, macroeconomic data, and central bank news. These partly overshadowed strong earnings reports from major US banks, which kicked off the Q2 earnings season.
Regionally, Chinese equities rose the most (+3.7%), supported by China’s technology sector strength, with the Hang Seng TECH Index progressing by +5.5% as tensions with the US appeared to ease following Nvidia’s (+4.5%) announcement of reduced chip export curbs to the country; this supported momentum in the global technology sector (+2.0%, the best-performing sector) and boosted demand for the ‘Magnificent 7’ which rose by +1.7%.
Despite strong Q2 results from major US banks, whose trading activity benefited from recent market volatility and showed nascent signs of recovery in investment banking, market reaction was muted (S&P 500 Financials +0.7%), as expectations had run higher following the sector’s year-to-date outperformance and resulting valuation expansion (12-month forward P/E of 17.0x vs. the 5-year average of 14.5x). The results were also overshadowed by central bank headlines that temporarily called into question the independence of the US Federal Reserve. Management teams struck an optimistic tone regarding the strength of the US economy and consumer spending, even as they faced elevated interest rates, broader economic uncertainty, and higher prices – trends confirmed by June’s inflation data.
As of Friday 18 July, 12% of the S&P 500 constituents had reported Q2 results, with a 83% beat rate. This has led to upward revisions in EPS growth expectations for the quarter, now projected at +5.6%, compared with +4.9% at the end of June. In Europe, the scoreboard has been less positive, with some prominent companies issuing profit warnings due to tariff uncertainties. 22% of the US benchmark index (S&P 500) are set to release Q2 results this week, which are likely to influence market movements alongside ongoing trade developments as the 1 August deadline approaches.
Technology sector strength continued to lead global equities higher
Fixed income
Fixed income’s performance was mixed last week, with high yield (HY) and AT1s posting positive performances (+0.2% each), while AT1s saw a slight loss (-0.2%), which suggests that some investors are decreasing their exposures to the banking sector given the economic uncertainties in Europe.
Yields on 10-year US Treasuries were down slightly on Wednesday following the release of lower-than-expected PPI data. However, this trend was reversed after speculation about Trump potentially firing Fed Chair Powell based on the high renovation costs of the Federal Reserve’s headquarters, which led 10-year Treasury yields to rise again to around 4.5%.
In Europe, several government bonds came under pressure. The yields on 10-year gilts rose to monthly highs (almost 4.7%) following the release of labour data on Thursday that was less alarming than expected; this eased the pressure on Bank of England (BoE) to cut interest rates in the near future. In France, the yield on 10-year paper remains elevated at around 3.4% due to uncertainty over the prime minister’s budget-cut plan and opposition threats of a confidence vote.
10-year Treasury yields rose again to around 4.5%
Forex & Commodities
The USD continued to consolidate following the release of June’s CPI data. Markets priced out a Fed rate cut at its 31 July meeting. US President Trump floated the idea of firing Federal Reserve Chair Powell, resulting in a rise in bond yields and increased volatility in the exchange rate. We think that this USD consolidation will be brief, and the EUR/USD does not have much downside below 1.15.
The GBP underperformed following a combination of higher-than-expected inflation data, and weaker labour market data. Markets priced in a 25-bp rate cut at the BoE’s forthcoming August meeting with an 88% probability. GBP short positions are best expressed against the EUR rather than USD in our view. Gold was rangebound between USD 3,320–3,370 per oz. Silver rose above USD 39 per oz, however, it was unable to sustain its rally, though we maintain a constructive stance on it over the medium term.
Limited downside expected for the EUR/USD below 1.15
The opinions expressed herein are correct as at 21 July 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.
