Weekly Market Recap

On a seasonally adjusted basis, UK gross domestic product (GDP) shrank unexpectedly by 0.1% in May, after contracting 0.3% in April. Declining production and construction output drove this weakness. Analysts polled by FactSet had expected growth to rebound by 0.1%. Over the rolling three-month period, GDP expanded by 0.5% sequentially, coming off a 0.7% increase in the three months through April.

The Halifax building society said house prices stagnated in May, after falling 0.3% in April, when a tax break for first-time buyers expired. Year over year, house prices rose 2.5% versus 2.6% in the prior month. Halifax said transactions had picked up, with more buyers returning to the market. According to press reports, the UK’s finance minister, Rachel Reeves, is planning to launch a permanent mortgage guarantee scheme to help first-time buyers.

US President Donald Trump announced 25% trade levies on major trading partners South Korea and Japan, as well as tariffs at varying levels on other countries, including Canada, South Africa, Thailand, and Malaysia. He also said that his administration would dramatically increase Brazil’s tariff to 50% in a move linked to the country’s legal proceedings against former right-wing President Jair Bolsonaro.

In addition to the country-specific tariffs, President Trump also announced an upcoming 50% tariff on copper. This triggered an immediate spike in US copper futures contract prices, while benchmark copper futures traded outside the US were little changed to lower.

In a slow week for economic data releases, investors digested Wednesday’s release of the minutes from the Federal Reserve’s mid-June policy meeting. The minutes showed some disagreement among members of the Federal Open Market Committee (FOMC) about the direction of monetary policy. While “most” policymakers said that they anticipate cutting rates this year, two stated that they would be open to rate reductions as soon as the late-July FOMC meeting. On the other hand, some committee members said that they did not anticipate cutting rates at all in 2025. Stocks showed little reaction to the FOMC minutes.

Eurozone retail sales volumes fell 0.7% sequentially in May, slightly more than expected, indicating that consumer spending remained subdued. In April, sales rose 0.3%. The annual rate slowed to 1.8% from 2.7% the previous month. 

Industrial production in Germany rebounded in May, increasing seasonally adjusted 1.2% from April, when it had fallen 1.6%. However, trade was weak, with exports shrinking 1.4% month over month, following a 1.6% decline in April. In Italy, production softened in May, falling by a seasonally adjusted 0.7%, almost cancelling out the 0.9% rise in April, as the manufacturing sector continued to struggle.

The producer price index fell 3.6% in June from a year earlier, the country’s statistics bureau reported Wednesday. June’s decline was worse than economists’ forecasts and marked the 33rd month of factory deflation, as well as the biggest drop for producer prices in nearly two years, according to Bloomberg. The consumer price index unexpectedly rose 0.1%, snapping a four-month streak of declines. However, analysts said the increase was likely driven by recent stimulus measures rather than a sustained improvement in consumer confidence.

The latest inflation report raised the possibility that China’s leaders may roll out more stimulus to lift the economy out of a persistent cycle of falling prices, corporate profits, and wages. Earlier in July, officials at a high-level economic meeting chaired by China’s President Xi Jinping pledged to crack down on “disorderly” low-price competition and phase out outdated industrial capacity, Bloomberg reported, citing state-run media. The report underscored the urgency that China’s leaders have assigned to tackling deflation resulting from weak domestic demand.

Tariff-related developments—notably some signs of growing tensions in US-Japan trade relations—and mixed domestic economic data releases weighed on investor risk appetite. The yen weakened to JPY 147.4 against the USD, from the prior week’s 144.5. The yield on the 10-year JGB rose to 1.51% from 1.43% at the end of the previous week.

The US announced that it would implement a slightly higher tariff of 25% on Japanese imports, up from the 24% rate the administration set in early April. However, many investors viewed positively the indication that the higher tariff will only come into force on 1 August 2025, leaving more time for negotiations. On the negative side, Japan is also focused on the 20 July Upper House election, where Prime Minister Shigeru Ishiba’s ruling coalition is expected to lose seats, compounding political risk.

Domestic economic data releases were mixed. Sentiment was pressured by data showing that Japan’s wage growth slowed sharply in May, raising concerns about the broader economic recovery and reaffirming some expectations that the Bank of Japan could delay its next interest rate hike until next year. Japan’s nominal wages rose 1.0% year on year in May, less than consensus estimates of a 2.4% increase and slowing from 2.0% in April. Real (inflation-adjusted) wages fell 2.9% year on year, more than the consensus estimate of a 1.7% decline and following a 1.8% decline.

On the positive side, separate data showed that household spending rebounded 4.7% year on year in May, exceeding the consensus of 1.2% and following a 0.1% decline in April.

The Reserve Bank of Australia (RBA) held the cash rate unchanged at 3.85% in July, against market expectations of a cut. The Governor noted that they were still on an easing path, but there was scope to “wait for a little more information”. This was a notable shift from the message at the prior meeting, where the RBA signalled that its inflation mandate had been achieved and considered a 50bps rate cut. Australian business conditions rose sharply by 9 points in June, largely driven by the trading sub-component.

Last week, the MSCI All Country World Index (MSCI ACWI) lost -0.3% (11.0% YTD).

The US S&P 500 Index edged down -0.3% (7.2% YTD). Tariff news dominated the headlines, but market reaction was muted compared with previous tariff announcements. Growth stocks modestly outperformed value stocks, and small-cap stocks slightly underperformed large-cap stocks. The Russell 1000 Growth Index returned -0.2% (6.9% YTD), the Russell 1000 Value Index -0.6% (7.1% YTD), and the Russell 2000 Index -0.6% (0.9% YTD). The technology-heavy Nasdaq Composite slipped -0.1% (7.0% YTD), holding up best among the major US stock indices.

Investors have begun to follow airline earnings announcements as something of a bellwether of consumer strength. Delta Air Lines provided a supportive full-year 2025 earnings outlook—after withdrawing its guidance in the wake of the early-April tariff announcements—and said that travellers were returning to the skies. The supportive outlook from Delta lifted shares of US airlines broadly. In single-stock news, NVIDIA hit the $4 trillion market capitalisation threshold for the first time, helping put the “mega” in the so-called Magnificent Seven group of mega-cap stocks.

In Europe, the MSCI Europe ex UK Index ended the week 1.1% higher (10.8% YTD) amid hopes for more trade deals between the US and other countries. However, the market turned lower at the end of the week, curbing gains, after President Trump said he would send a letter notifying the EU of higher tariffs on its goods. Most major stock indexes advanced. Germany’s DAX Index climbed 2.0% (21.8% YTD), France’s CAC 40 Index gained 1.7% (9.2% YTD), and Italy’s FTSE MIB Index added 1.2% (21.2% YTD). Switzerland’s SMI Index retreated -0.3% (6.2% YTD). The euro weakened against the US dollar, closing the week at USD 1.17 for EUR, down from 1.18.

The FTSE 100 Index in the UK rose 1.3% (11.7% YTD), hitting a record high during the week, and the FTSE 250 Index was up 0.3% (6.9% YTD). The British pound weakened against the US dollar, closing the week at USD 1.35 for GBP, down from 1.37.Japan’s stock markets were mixed over the week. The TOPIX Index shed -0.2% (2.1% YTD), but the TOPIX Small Index added 1.8% (8.4% YTD).

In Australia, the S&P/ASX 200 Index lost -0.3% (7.5% YTD) due to the surprise RBA hold and further tariff announcements from President Trump. Australian government bond yields shifted higher, with the curve largely unchanged. As a result, the Australian dollar strengthened against the US dollar by 0.5%.

In Canada, the S&P/TSX Composite was flat (11.0% YTD).

The MSCI Emerging Markets Index ended the week down -0.1% (16.4% YTD), with the stock markets of China, Taiwan, and South Korea contributing positively to the performance. In contrast, those of India and Brazil contributed negatively.

Mainland Chinese stock markets rose as data showing persistent deflation spurred hopes for more stimulus. The onshore CSI 300 Index rose 1.1% (3.7% YTD), and the Shanghai Composite Index put on 1.4% (6.4% YTD). Hong Kong's benchmark Hang Seng Index edged up 0.9% (23.4% YTD). The MSCI China Index advanced 0.9% (19.4% YTD). 

In Türkiye, after a volatile first half of the year for global economies and financial markets, T. Rowe Price sovereign analyst Peter Botoucharov revisited Turkey’s economic and fiscal situation and noted the following:

- The key priority for Turkey’s economic team remains the disinflation process, with the central bank aiming to bring headline inflation—currently around 36%—down to the 20% to 25% range by the end of 2025 and down to the 12% to 15% range by the end of 2026.

- Independent monetary policymaking and maintaining a tight policy stance remain vital for reining in inflation. However, the tight policy stance could be keeping real growth below the economy’s potential. The economy has experienced 2.5% real (inflation-adjusted) growth thus far this year versus projections of 4.0% growth. 

- The government’s fiscal performance has improved compared with 2024, but it is likely to underperform the initial 2025 budget deficit target set at 3.1% of GDP. 

- The slow but sustained real appreciation of the Turkish lira has been pressuring and reducing the competitiveness of some low-value-added industries, such as textiles and furniture manufacturing. There has, however, been no broader economic dislocation resulting from the currency appreciation. 

In summary, Botoucharov’s views remain largely unchanged. Although the balance between the current tighter monetary policy and a looser fiscal stance was not fully expected at the start of the year, this policy mix should deliver the desired results, such as lower inflation, lower credit growth, a relatively smooth economic adjustment, and increased accumulation of foreign exchange reserves.

Bulgaria, a former Soviet bloc country, has recently received final legal approval from the EU finance ministers to join the eurozone on 1 January 2026. The European Central Bank (ECB) and the European Commission have already confirmed that the country has met all formal requirements to join the single currency zone.

According to T. Rowe Price analyst Peter Botoucharov, joining the eurozone completes almost three decades of Bulgaria’s convergence toward EU policies, institutions, and standards—a process that started with the establishment of the Currency Board in 1997, passed through the EU membership in 2007, and now culminating in becoming the 21st member of the eurozone.

Botoucharov believes that Bulgaria’s macroeconomic background remains solid, that its institutional framework is based on sound principles, and that joining the eurozone will be favourable in a number of ways. For example, eurozone membership should reduce further transaction costs as well as potential risks associated with the banking system.

The country’s fiscal situation is strong: Bulgaria posted a 3% budget deficit in 2024, while its fiscal reserves stood at about EUR 5.4 billion at the end of December. Additionally, the central government’s debt-to-GDP ratio was approximately 19% to 20%, which is among the lowest in the EU and comparable to that of Estonia and Luxembourg.

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned -0.4% (2.3% YTD), the Bloomberg Global High Yield Index (hedged to USD) -0.1% (4.8% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index -0.3% (6.4% YTD).

US Treasuries rallied following the release of the FOMC minutes before losing ground to finish the week. The Treasury Department’s auction of new 10-year US Treasury notes on Wednesday saw healthy demand, helping ease recent investor concerns about the attractiveness of longer-maturity Treasuries as the US fiscal situation deteriorates. Over the week, the 10-year Treasury yield increased by 6bps, ending at 4.41% from 4.35% (down -16ps YTD). The 2-year Treasury yield rose 1bp, ending the week at 3.89% from 3.88% (down -36ps YTD).

The US investment-grade corporate bond market performed worse than Treasuries and generated negative returns. The issuance of investment-grade corporates was slightly higher than expected, but was, on average, oversubscribed. The high yield bond market mostly tracked equities amid mixed sentiment. Issuance was light after several new deals priced at the beginning of the week. The bank loan primary calendar was active with opportunistic refinancing transactions.

Over the week, the 10-year German bund yield increased by 11bps, ending at 2.72% from 2.61% (up 36bps YTD). The 10-year UK gilt yield rose by 7bps, ending the week at 4.62% from 4.55% (up 7bps YTD).